Consumer Price Index (CPI) in July 2016 increased due to the rise in volatile foods, electricity rates, transportation tariff,

Monthly Inflation:”Remains Tame”

CPI Review

Consumer Price Index (CPI) in July 2016 increased due to the rise in volatile foods, electricity rates, transportation tariff, and tuition fee a result of increased demand of Lebaran celebrations and new academic year. Furthermore, monthly inflation increased by 0.69% m-o-m from 0.66% m-o-m in the preceding month. Based component, the inflation was posted by the foodstuffs component increased by 1.12% m-o-m, prepared food component rose by 0.54% m-o-m and the transportation and communication component also increased by 1.22% m-o-m.  Moreover, the education, recreation, and sports component increased by 0.51% m-o-m and the clothing component rose by 0.44% m-o-m. Meanwhile, the medical care component increased by 0.37% m-o-m and the housing component experienced slightly rose by 0.24% compared to preceding month. However, yearly inflation decreased to 3.21% y-o-y in July 2016, compared from 3.45% y-o-y in the previous month.

Inflation in the foodstuffs component in July 2016 mainly stemmed from higher prices of Onion, chicken meat, potato, fish, rice, red pepper, beef, spinach, apple, chili, and coconut. We believe the price increase in these products were mainly due to

a.   Lower domestic supply

b.   Higher domestic demand (Lebaran effect)

Furthermore, inflation in the transportation and communication component in July 2016 came primarily from higher prices of air freight rates, inter-city transportation tariff, and train tariff. Inflation in the housing component in July 2016 came primarily from higher prices of electricity rates, housing rents, and housing contracts.

Meanwhile, inflation in the prepared foods component in July 2016 mainly stemmed from higher prices of rice with meal, sugar, cigarette, white cigarette, and filter cigarette. Inflation in the education, recreation and sports component in July 2016 mainly stemmed from higher prices of tuition fee (elementary school and high school) and cost of tutoring.

Moreover, inflation in the medical care component in July 2016 still came primarily from higher price of body care services sub-sector. Inflation in the clothing component in July 2016 came primarily from higher prices of personal goods and other clothing sub-sector.

On a yearly basis, inflation remains in check with the downward trend still intact, as the inflation decreased to 3.21% y-o-y in July 2016 compare 3.45% y-o-y in the previous month. Furthermore, year to date inflation in January–July 2016 reached 1.76% lower than 1.90% for the same time frame in 2015.

CPI Outlook

We expect inflation remains tame in August 2016. Tame inflationary pressures during this month as food prices are lower due to return to normal in demand after the end of Ramadan and Eid celebrations. Foodstuffs prices declined such as cooking oil, beef, chicken, wheat, soybeans, sugar, cayenne pepper, red peppers, onion, garlic, and salt fish. Meanwhile, the price of rice, instant noodles, eggs, and milk are still increasing. In addition, a decrease in transport rates such as air transport, inter-city transportation, and trains also make tame inflationary pressures. On the other hand, the rising cost of education (colleges and universities), housing rents, housing contracts, and car prices make the retention of inflation decline further. Based on these factors, we expect the consumer price index in August 2016 may decrease 0.10% m-o-m (deflation) lower than in July 2016 which reached inflation 0.69% m-o-m. Furthermore, we expect the yearly inflation rate in August 2016 will decrease to 2.71% y-o-y from 3.21% y-o-y in July 2016.

Meanwhile, we expect monthly core inflation also benign in August 2016. Core Inflationary pressure was still caused by rising prices of car, housing rent, housing contract, and tuition fee.  However, the decline in transportation fares such as air transport, inter-city transportation, and trains withstand rising core inflation. We expect core inflation in August 2016 may reach 0.30% m-o-m lower than 0.34% m-o-m in July 2016. Furthermore, we expect the yearly core inflation in August 2016 would decrease to 3.27% y-o-y from 3.49% y-o-y in the previous month.