FW: Indonesia's CPI Outlook May 2018

 

 

Monthly Inflation:”Slight Upward”

 

CPI Review

Consumer Price Index (CPI) in April 2018 slightly increased due to the rising prices of cigarette, gasoline, and gold jewelry. Monthly inflation in April reached 0.10% m-o-m, lower from 0.20% m-o-m in the preceding month. Based component, the inflation was posted by the prepared food component rose by 0.24% m-o-m, the clothing component rose by 0.29% m-o-m, and the transportation, communication and financial services component rose by 0.19% m-o-m. Furthermore, the housing component experienced rose by 0.16% compared to preceding month and the medical care component increased by 0.22% m-o-m. Meanwhile, the deflation was posted by the foodstuffs component decreased by 0.26 m-o-m,

 

Inflation in the prepared foods component in April 2018 mainly stemmed from higher prices of cigarette, white cigarette, and filter cigarette. Inflation in the clothing component in April 2018 still came primarily from higher prices of gold and jewelry.

 

Furthermore, inflation in the housing component in April 2018 came primarily from higher prices of housing rents and housing contracts. Inflation in the education, recreation and sports component in April 2018 mainly stemmed from higher prices of recreation sub-sector.

 

Moreover, inflation in the medical care component in April 2018 still came primarily from higher price of medicines sub-sector. Inflation in the transportation, communication, and financial services component in April 2018 came primarily from higher prices of gasoline.

 

Meanwhile, deflation in the foodstuffs component in April 2018 mainly stemmed from lower prices of rice, fish, reed pepper, spinach, kale, melon, and chili. We believe the price decrease in these products were mainly due to

a.   Higher domestic supply

b.   Lower domestic demand

 

On a yearly basis, inflation remains in check with the upward trend still intact, as the inflation slightly increased to 3.41% y-o-y in April 2018 compare 3.40% y-o-y in the previous month. However, year to date inflation in January-April 2018 reached 1.09% lower than 1.28% for the same time frame in 2017.

 

 

CPI Outlook

We expect a slight upward inflationary pressure in May 2018. This is due to the seasonal impact of Ramadan. As in previous years each month of Ramadan demand for goods and services increased. At the same time the supply of goods and services is limited, consequently prices tend to rise. Nevertheless, the government decided to stabilize food prices during Ramadan and Idul Fitri by increasing the supply of foodstuffs from both domestic and imports, which makes food prices relatively stable in Ramadan this year. Food prices are still rising this month such as beef, chicken meat, eggs, milk, and instant noodles. Meanwhile, the impact of the weakening of the Rupiah made imported inflation pressures increased. Meantime, the price of gold jewelry is relatively stable this month. Based on these factors, we expect the consumer price index in May 2018 will reach 0.26% m-o-m, higher than 0.10% m-o-m in April 2018. Nevertheless, we expect the yearly inflation rate in May 2018 will decrease to 3.28% y-o-y from 3.41% y-o-y in April 2018. Looking ahead, we also expect inflation may reach 3.50% y-o-y by the end of 2018.

 

Meanwhile, we also expect a slight upward core inflationary pressure in May 2018. The pressure still comes from the increase in price of cigarette, car prices, housing rent, housing contract, servant wages, and the weakening of Rupiah. We expect core inflation in May 2018 will reach 0.25% m-o-m, higher than 0.15% m-o-m in April 2018. Furthermore, we expect the yearly core inflation in May 2018 may increase to 2.79% y-o-y from 2.69% y-o-y in the previous month. Forward looking, we also expect core inflation may reach 3.00% by the end of 2018.

 

 

Regards,

 

Juniman

Chief Economist

PT Bank Maybank Indonesia Tbk

Sentral Senayan III, 8th Floor

Jl. Asia Afrika No. 8, Gelora Bung Karno

Jakarta 10270, Indonesia

Tel  : +62 21 29228888 Ext.29682

Fax  : +62 21 29228849

Juniman@maybank.co.id

 

 

 

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