• Headline inflation eased for the fourth straight month in July (2.13% YoY; Jun: 2.51%), lower than the consensus of 2.4% and remains within Bank Indonesia’s (BI) target band of 1.5% - 3.5%
  
  − MoM (-0.18%; Jun: -0.08%): fell for the third straight month, and the slowest pace in 23 months.
  
  − Core inflation (1.95% YoY; Jun: 1.90%): inched up slightly, partly due to a lower base effect last year.

• Lower price pressure due to slower index growth of food and transportation
  
  − Food, beverage & tobacco (3.66%; Jun: 4.95%): slowed to an 11-month low, amid lower prices of shallots, chilis and chicken.
  
  − Transportation (1.22%; Jun: 1.61%): price moderated to a four-month low, mainly as non-subsidized fuel prices remained unchanged since January despite higher global crude oil prices (average Brent crude oil price: July 2024: USD85.3/bbl vs July 2023: USD80.1).

• Mixed inflationary pressure across the ASEAN countries
  
  − VN: inflation inched up slightly in July (4.4%; Jun: 4.3%), slightly below the government's target ceiling of 4.5%.
  
  − TH: inflation slowed sharply in June (0.6%; May: 1.5%), below the central bank’s target range of 1.0% - 3.0%.

• 2024 average inflation forecast retained at 3.0% (2023: 3.7)
  
  − Year-to-date (Jan-Jul), headline inflation grew at an average of 2.69% YoY (Jan-Jun: 2.79%), mainly due to lower food prices. Despite lower price pressure in the first seven months, we still expect price pressures to rise toward the end of the year as last year’s high base effect diminishes. However, the overall average inflation for 2024 is anticipated to moderate due to slowing global growth on the back of the impact of a higher interest rate environment and subdued commodity prices.
  
  − For the monetary policy outlook, we continue to believe that BI to hold its policy rate steady at 6.25% in the near term to support the stability of the rupiah as it has repeatedly stressed. However, if the rupiah strengthens after the US Fed cuts rates, there is room for BI rate adjustment. That said, we now give a higher probability of one rate cut of 25 bps in 4Q24.

Source: Kenanga Research - 5 Aug 2024