Indonesia's CPI Outlook April 2016

Deflation:” Impact of the decline in fuel prices”

CPI Review

Consumer Price Index (CPI) in March 2016 remains manageable despite the increase in the volatile foods prices. Yearly inflation rose slightly to 4.45% y-o-y in March 2016), compared from 4.42% y-o-y in the previous month. Meanwhile, monthly inflation increased to 0.19% m-o-m from -0.09% m-o-m in the preceding month. The monthly inflation in March 2016 mainly comes from higher prices of spices, vegetables, cigarette, and gold jewelry. Based component, the inflation was posted by the foodstuffs component increased by 0.69% m-o-m and the prepared food component rose by 0.36% m-o-m. Meanwhile, the education, recreation, and sports component slightly increased by 0.03% m-o-m and the clothing component experienced rose by 0.55% compared to preceding month. The inflation was also posted by the medical care component increased by 0.30% m-o-m. Meanwhile, the deflation was posted by housing component decreased by 0.07% m-o-m and the transportation and communication component also decreased by 0.22% m-o-m.

Inflation in the foodstuffs component in March 2016 mainly stemmed from higher prices of onion, red pepper, chili, garlic, and cooking oil. We believe the price increase in these products were mainly due to

a.   Lower domestic supply

b.   Higher domestic demand

Furthermore, inflation in the prepared foods component in March 2016 mainly stemmed from higher prices of noodles, cigarette, white cigarette, and filter cigarette. Inflation in the education, recreation and sports component in March 2016 mainly stemmed from higher prices of sports sub-sector.

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

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

On a yearly basis, inflation remains in check with the upward trend still intact, as the inflation slightly increased to 4.45% y-o-y in March 2016 compare 4.42% y-o-y in the previous month. Furthermore, year to date inflation in March 2016 reached 0.62% higher than -0.44% for the same time frame in 2015.

CPI Outlook

We expect deflation in April 2016. The deflation is caused by government policy which lowers the price of fuel (gasoline and diesel oil) by an average of 8%. Furthermore, the government also lowered transportation rates an average of 3%. In addition, the government also lowered back electricity tariffs in line with the decline in oil prices. Meanwhile, the decline in the price of foodstuffs such as rice, onion, red pepper, cayenne pepper, beef, chicken, wheat, and soybeans also add to deflationary pressures in this month. Nevertheless, price pressures were still going on some goods and services, such as housing rents, housing contracts, and cars. Furthermore, the price of gold jewelry was also increased in April 2016. Based on these factors, we expect the consumer price index in April 2016 may decrease 0.38% m-o-m (deflation) lower than in March 2016 which reached inflation 0.19% m-o-m. Furthermore, we expect the yearly inflation rate in April 2016 will also decrease to 3.67% y-o-y from 4.45% y-o-y in March 2016.

Meanwhile, we expect yearly core inflation decrease in April 2016. Core Inflationary pressure was still caused by rising prices of gold jewelry, car, housing rent, and housing contract.  We expect core inflation in April 2016 may reach 0.16% m-o-m lower than 0.21% m-o-m in March 2016. Furthermore, we expect the yearly core inflation in April 2016 may decrease to 3.42% y-o-y from 3.50% y-o-y in the previous month.