Indonesia's CPI Outlook March 2016

Remain Manageable

CPI Review

In February 2016, the consumer price index (CPI) decreased by 0.09% m-o-m (deflation) from inflation 0.51% m-o-m in previous month. However, yearly inflation still increased to 4.42% y-o-y from 4.14% y-o-y in a month earlier. The rising yearly inflationary pressure is caused by deflation in February 2016 was lower than last year. Meanwhile, the monthly deflation in February 2016 mainly comes from lower prices of foodstuffs, electricity tariff, gasoline, and air freight fares.  Furthermore, the deflation was posted by the foodstuffs component decreased by 0.58% m-o-m. The deflation was also posted by housing component decreased by 0.45% m-o-m and the transportation and communication component also decreased by 0.15% m-o-m. Meanwhile, the prepared food component rose by 0.63% m-o-m. Furthermore, the education, recreation, and sports component slightly increased by 0.06% m-o-m and the clothing component experienced rose by 0.64% compared to preceding month. Meanwhile, inflation was also posted by the medical care component increased by 0.26% m-o-m.

Deflation in the foodstuffs component in February 2016 mainly stemmed from lower prices of onion, chicken meat, eggs, chili, tomato, spinach, cabbage, carrots, and oranges. We believe the price decrease in these products were mainly due to

a.   High domestic supply

b.   Lower domestic demand

Furthermore, deflation in the housing component in February 2016 came primarily from lower prices of electricity tariff and household fuel. Deflation in the transportation and communication component in February 2016 still came primarily from lower prices of gasoline and air freight rate.

Meanwhile, inflation in the prepared foods component in February 2016 mainly stemmed from higher prices of rice with meal, cigarette, white cigarette, and filter cigarette. Inflation in the education, recreation and sports component in February 2016 mainly still stemmed from higher prices of courses/training sub-sector.

Moreover, inflation in the medical care component in February 2016 came primarily from higher price of body care services sub-sector. Inflation in the clothing component in February 2016 came primarily from higher prices of gold and jewelry.

On a yearly basis, inflation remains in check with the upward trend still intact, as the inflation increased to 4.42% y-o-y in February 2016 compare 4.14% y-o-y in the previous month. Nevertheless, year to date inflation in February 2016 reached 0.42% higher than -0.61% for the same time frame in 2015.

CPI Outlook

We expect the consumer price index in March 2016 remain manageable. Relatively manageable inflationary pressure is caused by changes in food prices relatively mixed. There are some foods that experienced price hikes such as onion, chili, red pepper, salt fish, vegetables, and instant noodles. However, there are some foods that experienced price declines such as rice, cooking oil, chicken meat, beef, sugar, milk, wheat, and eggs. Meanwhile, non-subsidized fuel prices also showed a decline in line with the fall of world oil prices. In addition, decrease in electricity rates also led to a decline in inflationary pressure this month. Nevertheless, price pressures were still going on some goods and services, such as housing rents, housing contracts, and cars. Furthermore, the gold and jewelry price is relatively stable in March 2016. Based on these factors, we expect the consumer price index in March 2016 may increase 0.26% m-o-m higher than in February 2016 which reached deflation 0.09% m-o-m. Furthermore, we expect the yearly inflation rate in March 2016 will increase to 4.51% y-o-y from 4.42% y-o-y in February 2016.

Meanwhile, we expect yearly core inflation decrease in March 2016. Core Inflationary pressure was still caused by rising prices of car, housing rent, and housing contract.  We expect core inflation in March 2016 may reach 0.27% m-o-m lower than 0.31% m-o-m in February 2016. Furthermore, we expect the yearly core inflation in March 2016 may slightly decrease to 3.57% y-o-y from 3.59% y-o-y in the previous month.