Inflation Picks Up Slightly In September

Economic Research	4 October 2016
Indonesia
Economic Highlights
Inflation Picks Up Slightly In September The headline inflation increased to 3.1% y-o-y in September, up from +2.8% in August. The faster increase in prices of raw food products and costs of housing & utilities and a smaller deflation in transport & communication contributed to the pick-up. Overall, we expect the headline inflation to moderate to an average of 3.4% in 2016, from +6.4% in 2015, on account of low crude oil prices and relatively soft economic growth. This is lower than our previous projection of +4.0% due to softer-than-expected domestic demand in 3Q. For 2017, we expect inflation to pick up slightly to an average rate of 3.8%, on account of planned electricity tariffs hike and modest pick-up in volatile food prices. As the inflation will likely continue to be subdued, we expect Bank Indonesia to maintain its loose monetary and macroprudential policy. For the rest of the year, we envisage BI to retain its policy rate unchanged at the current level. Further out, we expect the BI to slash its key policyrate by another 50 basis points in 2017 to support economic growth. Economist:  Rizki Fajar| +6221 2970 7065
To access our recent reports please click on the links below: 23 Sep: BI Cuts The Key Rate to 5.00% 15 Sep: Both Exports and Imports Recover in August 01 Sep: Inflation Continues To Ease In August 01 Sep: Money Supply and Loan Growth Decelerate in July 22 Aug: BI Mantains The BI 7-day Reverse Repo Rate at 5.25% But Cut Lending Facility Rate to 6.00% 16 Aug: Sluggish Exports Return while Imports Remain Weak Amid Festive Celebration