• Headline inflation eased for the third straight month in June to 2.51% YoY (May: 2.84%), lower than the consensus of 2.70% but still within Bank Indonesia’s (BI) target band of 1.5% - 3.5%
  
  − MoM (-0.08%; May: -0.03%): fell for the second straight month, and the slowest pace in 20 months.
  
  − Core inflation (1.90% YoY; May: 1.93%): inched down slightly as demand pressure subsided.

• Lower price pressure due to weak food prices
  
  − Food, beverage & tobacco (4.95%; May: 6.18%): slowed to a nine-month low following the harvesting season.Nevertheless, it remained slightly higher than the 2023 average (4.86%).
  
  − Transportation (1.61%; May: 1.34%): price increased but relatively stable as non-subsidized fuel prices remainedunchanged since January despite higher global crude oil prices.

• Stable inflationary pressure across the region
  
  − VN: headline inflation slowed slightly in June (4.3%; May: 4.4%), below the government's target ceiling of 4.5%.
  
  − TH: inflation rose in May (1.5%; Apr: 0.2%), returning to the central bank’s target range of 1.0% - 3.0%.

• 2024 average inflation forecast retained at 3.0% (2023: 3.7) following a slight revision in May
  
  − Year-to-date (Jan-Jun), headline inflation grew at an average of 2.79% YoY (Jan-May: 2.84%). While we expectprice pressures to escalate in the 2H24 as the high base effect diminishes, the overall average inflation for 2024is anticipated to stay broadly stable and controlled on the back of a higher interest rate environment.
  
  − With that said, we expect BI to hold its policy rate steady at 6.25% in the near term given the stable inflation rateand the need to support economic growth. Nevertheless, room for further adjustment in the BI rate remainssusceptible to the stability of the rupiah as well as the US Fed policy direction.

Source: Kenanga Research - 2 Jul 2024