• Headline inflation eased marginally in August (2.12% YoY; Jul: 2.13%), matching consensus and remains within Bank Indonesia’s (BI) target band of 1.5% - 3.5%
  
  − MoM (-0.03%; Jul: -0.18%): fell for the fourth straight month, tracking seasonal trends.
  
  − Core inflation (1.99% YoY; Jul: 1.95%): inched up slightly to an 11-month high.

• Lower inflation due to lower prices of food and housing
  
  − Food, beverage & tobacco (3.61%; Jul: 3.66%): continue to moderate, thanks to lower prices for key staples such as chilli, corn and rice amid harvesting season in July and August.
  
  − Housing, water, electricity & other fuel (0.38%; Jul: 0.5%): slowed to an eight-month low.
  
  − Transportation (2.00%; Jul: 1.22%): accelerated to a 12-month high, due to higher non-subsidized fuel prices.

• Slightly higher inflationary pressure across the ASEAN countries
  
  − Philippine: headline inflation accelerated in July (4.4%; Jun: 3.7%), driven by higher prices of housing, water, electricity, gas and other fuels.
  
  − Thailand: inflation edged up in July (0.83%; Jun: 0.62%) due to higher energy and food prices. Nonetheless, it remained below the central bank’s target range of 1.0% - 3.0%.

• 2024 average inflation forecast is revised down to 2.5% from the previous 3.0% (2023: 3.7)
  
  − Headline inflation has decreased in recent months, averaging 2.62 YoY (Jan-Jul: 2.69%) year-to-date. This moderation was primarily driven by lower food prices due to the recent harvest season. However, we expect price pressures to rise towards the year’s end as high base effect from last year fades, in line with seasonal trend. Giventhe lower-than-expected year-to-date performance so far, we’ve revised our overall average inflation forecast.
  
  − Likewise, we continue to believe that BI will hold its policy rate steady at 6.25% in the near term to support rupiah stability amid heightened global financial uncertainty. Nevertheless, any significant appreciation below IDR15,500 may provide some space for early monetary easing, especially as the current monetary stance is considered restrictive.

Source: Kenanga Research - 3 Sep 2024