• Headline inflation expanded to 2.86% YoY in November (Oct: 2.56%), beating the consensus of 2.71% but still within Bank Indonesia’s (BI) inflation target band of 2.0% - 4.0%
  
  − MoM (0.38%; Oct: 0.17%): expanded to an 11-month high.
  
  − Core inflation (1.87% YoY; Oct: 1.91%): moderated slightly, the lowest since January 2022.

• Price pressure is mainly driven by the rise of staple food prices
  
  − Food, beverage & tobacco (6.71%; Oct: 5.41%): surged to a nine-month high, mainly driven by higher prices of several food commodities such as rice, chilli, and chicken.
  
  − Transportation (1.27%; Oct: 1.20%): expanded slightly despite a relatively lower monthly fuel price.

• Mixed inflationary pressure across the region
  
  − VN: headline inflation moderated slightly in November (3.4%; Oct: 3.6%) with a year-to-date average of 3.2%, below its central bank’s inflation target of 4.5%.
  
  − SG: headline inflation expanded in October (4.7%; Sep: 4.1%). Similarly, core inflation increased to 3.3% (Sep: 3.0%) due to higher prices for services, retail, other goods, and electricity and gas.

• 2023 average inflation forecast remains at 3.8% (2022: 4.21%) and is expected to moderate to 3.2% in 2024
  
  − The year-to-date average currently stands at 3.77% YoY. House foreast is retained at 3.8% for the year on the expectation that the price pressure would elevate in the final month of 2023 on higher food prices brought by the weak rupiah. Nevertheless, a cumulative 250 basis points rate hike by BI previously is expected to temper price pressure going forward. That said, we project inflation to moderate to 3.2% in 2024.
  
  − On the monetary policy front, we expect BI to hold the policy rate steady at 6.00% in its last Board of Governor meeting this year, scheduled for 21st December. This is likely to support the fragile rupiah, given the uncertainty of the global financial market, while inflation will likely remain within the BI target range. Nevertheless, BI still has some room to cut its policy rate in 2024, as the current restrictive monetary policy may impede growth.

Source: Kenanga Research - 4 Dec 2023