• Headline inflation expanded marginally to 2.56% YoY in October (Sep: 2.28%), slightly lower than the consensus of 2.60% but still within Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0%
  
  − MoM (0.17%; Sep: 0.19%): moderated slightly.
  
  − Core inflation (1.91% YoY; Sep: 2.00%): moderated further, its lowest since January 2022.

• Price pressure driven by higher food and transportation prices
  
  − Food, beverage & tobacco (5.41%; Sep: 4.17%): rose to a seven-month high, driven by higher prices of rice, chicken meat, and cigarettes.
  
  − Transportation (1.20%; Sep: 0.99%): expanded slightly, in line with increased fuel prices on the back of higher Brent crude oil prices.

• Mixed inflationary pressure across the region
  
  − VN: headline inflation moderated slightly in October (3.6%; Sep: 3.7%) after reaching a seven-month high in the previous month, primarily attributed to higher prices in the education group.
  
  − SG: headline inflation increased slightly in September (4.1%; Aug: 4.0%). However, its key consumer price gauge, namely the core inflation, eased to 3.0% (Aug: 3.4%).

• 2023 average inflation forecast retained at 3.8% (2022: 4.21%) amid higher interest rates
  
  − We keep our inflation target for this year as we believe inflationary pressure will likely remain under control due to the impact of cumulative 250 basis points rate hikes by BI previously.
  
  − Likewise, our monetary policy rate outlook remains unchanged, following a surprise hike in October and upside risk to price pressures in the near term due to the weaker rupiah and its impact on imported inflation. BI is expected to keep the policy rate unchanged at 6.00% for the rest of the year, mainly to support the fragile rupiah as inflation will likely remain within the BI target range. Nevertheless, there is room for BI to cut its policy rate, which is subject to the direction of the US Fed in the next 6 to 12 months.

Source: Kenanga Research - 2 Nov 2023