FW: Indonesia's CPI Outlook September 2017

 

 

Monthly Inflation:”Remain benign”

 

CPI Review

Consumer Price Index (CPI) in August 2017 fell due to the decreasing prices of foodstuffs, intercity transportation tariff, and air freight rates. On the other hand, the cost of education has increased due to the new school year. Monthly deflation reached 0.07% m-o-m, lower from inflation 0.22% m-o-m in the preceding month. Based component, the deflation was posted by the foodstuffs component decreased by 0.67% m-o-m and the transportation and communication component experienced fell by 0.60% m-o-m. Meanwhile, the inflation was posted by the education component increased by 0.89% m-o-m and the prepared food component rose by 0.26% m-o-m. Furthermore, the housing component experienced rose by 0.10% compared to preceding month, the clothing component rose by 0.32% m-o-m, and the medical care component increased by 0.20% m-o-m.

 

Deflation in the foodstuffs component in August 2017 mainly stemmed from lower prices of onion, garlic, fish, tomato, chili, potato, spinach, "jengkol", carrot, coconut, and cooking oil. We believe the price decrease in these products were mainly due to

a.   Higher domestic supply

b.   Lower domestic demand

 

Furthermore, deflation in the transportation and communication component in August 2017 came primarily from lower prices of air freight rates and intercity transportation tariff.

 

Meanwhile, inflation in the education, recreation and sports component in August 2017 mainly stemmed from higher prices of tuition fees (primary school, junior school, and high school) and recreation tariff. Inflation in the prepared foods component in August 2017 mainly stemmed from higher prices of rice with meal, cigarette, white cigarette, and filter cigarette.

 

Moreover, inflation in the housing component in August 2017 came primarily from higher prices of non-foreman wages and servant wages. Inflation in the clothing component in August 2017 came primarily from higher prices of gold and jewelry. Inflation in the medical care component in August 2017 still came primarily from higher price of body care services sub-sector.

 

On a yearly basis, inflation remains in check with the downward trend still intact, as the inflation slightly decreased to 3.82% y-o-y in August 2017 compare 3.88% y-o-y in the previous month. Nevertheless, year to date inflation in January–August 2017 reached 2.53% higher than 1.74% for the same time frame in 2016.

 

 

CPI Outlook

We expect inflationary pressures remain benign in September 2017. This is due to the relatively stable prices of foodstuffs. Furthermore, the price of some foodstuffs decreased, such as cayenne pepper, red chili, onion, garlic, sugar, milk, and beef. Nevertheless, the prices of some foods still show increases such as rice, eggs, cooking oil, and wheat. Meanwhile, inflationary pressures stem from the rising cost of education for colleges and universities. Moreover, the price of gold jewelry also increase compared with the previous month along with rising gold prices in the international market. Based on these factors, we expect the consumer price index in September 2017 will reach 0.04% m-o-m, higher than -0.07% m-o-m in August 2017. However, we expect the yearly inflation rate in September 2017 will decrease to 3.63% y-o-y from 3.82% y-o-y in August 2017. Looking ahead, in line with the government's decision not to raise electricity and fuel tariffs until the end of the year and the relatively stable of foodstuffs prices, we revise down the inflation projection from 4.00% to 3.83% by the end of 2017.

 

Meanwhile, we also expect core inflationary pressures also remain manageable in September 2017. The pressure comes from the increase in price of tuition fees, gold jewelry, housing rent, and housing contract. We expect core inflation in September 2017 may reach 0.29% m-o-m slightly higher than 0.28% m-o-m in August 2017. Nevertheless, we expect the yearly core inflation in September 2017 will decrease to 2.94% y-o-y from 2.98% y-o-y in the previous month. Forward looking, we still maintain core inflation projection at 3.20% by the end of 2017 due to relatively tame impact of electricity tariff increases and the government's success to control volatile foods prices.