Headline inflation moderated sharply to 2.28% YoY in September (Aug: 3.27%), slightly higher than the consensus of 2.23% but within Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0%
− MoM: rebounded (0.19%; Aug: -0.02%) following a marginal drop in the preceding month.
− Core inflation: moderated (2.00% YoY; Aug: 2.18%), lowest since January 2022.
Easing inflationary pressure due to a sharp moderation in transportation prices amid high base effect, but was capped by higher food prices
− Food, beverage & tobacco (4.17%; Aug: 3.51%): rose to a four-month high, partly due to the impact of El Nino.
− Transportation (0.99%; Aug: 9.65%): moderated sharply, the lowest since September 2021 due to the high base effect recorded last year.
Mixed inflationary pressure across the region
− VN: headline inflation surged to a seven-month high in September (3.7%; Aug: 3.0%), driven by higher prices in the education group.
− SG: headline inflation eased slightly to a 21-month low in August (4.0%; Jul: 4.0%). Similarly, its key consumer price gauge, namely the core inflation, also moderated to 3.4% (Jul: 3.8%).
2023 average inflation forecast to remain at 3.8% (2022: 4.21%)
− Given the sharp moderation in September’s inflation rate, we expect overall inflation to average 3.8% with some downside bias that it could settle below our target. The easing inflationary pressure is mainly due to the impact of cumulative 225 basis points rate hikes by BI previously and the high base effect recorded in 2H22. This is also partly due to the lower commodity prices amid the impact of the global economic slowdown, particularly weak China’s economic recovery and the lag effect of a higher interest rate environment among advanced economies.
− Nevertheless, we maintain our monetary policy rate outlook, with BI expected to keep the policy rate unchanged at 5.75% for the rest of the year to support the fragile rupiah. However, we believe BI has room to lean towards a rate cut to support the growth outlook going forward.
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