Indonesia's CPI Outlook April 2014

Remain Benign by Harvest Season

CPI Review

In March 2014, the consumer price index (CPI) rose by 0.08% m-o-m decreasing from 0.26% m-o-m in the previous month. The fall in food prices was caused by the end of floods in some regions of Indonesia. After the flood subsided, the prices of foodstuffs has decreased and returning to normal patterns. This is due to the re- supply of foodstuffs improvement in the disaster areas. The deflation in March was posted by the foodstuffs component fell by -0.44% m-o-m. Meanwhile, the inflation in March was posted by the prepared food component rose by 0.43% m-o-m and the medical care component increased by 0.44% m-o-m. Furthermore, the prices of housing component rose by 0.16% m-o-m and the education, recreation, and sports component increased by 0.14%. The inflation was also posted by transportation and communication component rose by 0.24% m-o-m and the clothing component increased by 0.08% m-o-m.

Deflation in the foodstuffs component in March 2014 mainly stemmed from lower prices of Eggs, red pepper, chicken, tomatoes, fresh fish, carrots, melon, and tomato fruit. We believe the price decrease in these products were mainly due to

a.   Higher domestic supply

b.   Lower domestic demand

Meanwhile, inflation in the prepared foods component in March 2014 mainly stemmed from higher prices of noodles, cigarettes, filter cigarette, and white cigarette. Inflation in the housing component in March 2014 came primarily from higher prices of household operating sub-sector. Inflation in the clothing component in March 2014 still came primarily from higher price of men clothing sub-sector.

Furthermore, inflation in the transportation and communication component in March 2014 mainly still stemmed from higher prices of air freight rates and car. Inflation in the education, recreation and sports component in March 2014 mainly stemmed from higher prices of recreation sub-sector.  Inflation in the medical care component in March 2014 came primarily from hike in body care and cosmetics sub-sector.

On a yearly basis, inflation remains in check with the downward trend still intact, as the inflation fell from 7.75% y-o-y in February 2014 to 7.32% y-o-y in March 2014. Year to date inflation in January – March 2014 reached 1.41% lower than the 2.13% for the same time frame in 2013.

CPI Outlook

We expect inflationary pressures remain benign in April 2014. This is caused by the presence of the harvest season in April 2014. As with previous years, every harvest season abundant supplies rice and make an impact on the drop of this commodity price. The fall in rice price also led to the decline other foods commodities such as red pepper, cayenne pepper, peanuts, sugar, eggs, flour, beef, and cooking oil. Meanwhile non-food commodity prices relatively stable during April 2014. Moreover, we estimate the impact of the increase in electricity tariff for industry in April 2014 against the rising prices of goods occurs in the next month. Based on these factors, we expect inflation in April 2014 will reach -0.07% (deflation) m-o-m lower than in March 2014 which reached 0.08% m-o-m. Furthermore, we also expect the yearly inflation rate in April 2014 will decrease to 7.20% y-o-y from 7.32% y-o-y in March 2014.

In line with headline inflation pressures remains tame, we expect core inflation is still relatively manageable in April 2014. This is influenced by the stable price of gold jewelry and reduced the impact of the weakening of the Rupiah against imported goods prices (imported inflation). Based on these factors, we expect core inflation in April 2014 will reach 0.10% m-o-m lower than in March 2014 which reached 0.21% m-o-m. Furthermore, we expect the yearly core inflation rate in April 2014 will slightly decrease to 4.58% y-o-y from 4.61% y-o-y in March 2014.

Regards,

Juniman

Chief Economist

PT Bank Internasional Indonesia Tbk (BII)

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@bankbii.com

---

This e-mail and any attachments are intended only for use by the addressee(s) named herein and may contain legally privileged and/or confidential information. If you are not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this e-mail and any attachments is strictly prohibited. E-mail transmission cannot be guaranteed to be secured or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender shall not be held responsible for any errors or omissions in the contents of this message, which arise as a result of e-mail transmission