FW: Indonesia's CPI Outlook October 2017

 

 

Monthly Inflation:”Still Manageable”

 

CPI Review

Consumer Price Index (CPI) in September 2017 increased due to the rising prices of cost of education, cigarette, and gold jewelry. On the other hand, the foodstuffs prices still fell. Monthly inflation reached 0.13% m-o-m, higher from -0.07% m-o-m in the preceding month. Based component, the inflation was posted by the education component increased by 1.03% m-o-m, the clothing component rose by 0.52% m-o-m, and the prepared food component rose by 0.34% m-o-m. Furthermore, the housing component experienced rose by 0.21% compared to preceding month, the medical care component increased by 0.16% m-o-m, and the transportation and communication component experienced rose by 0.02% m-o-m. Meanwhile, the deflation was posted by the foodstuffs component decreased by 0.53% m-o-m

 

Inflation in the education, recreation and sports component in September 2017 mainly stemmed from higher prices of tuition fees (primary school, junior school, high school, and academy/university) and recreation tariff. Inflation in the clothing component in September 2017 came primarily from higher prices of gold and jewelry.

 

Furthermore, inflation in the prepared foods component in September 2017 mainly stemmed from higher prices of Porridge, noodles, rice with meal, cigarette, white cigarette, and filter cigarette. Inflation in the housing component in September 2017 came primarily from higher prices of iron concrete, household fuel, servant wages, housing rents, and housing contracts

 

Moreover, Inflation in the medical care component in September 2017 still came primarily from higher price of body care and cosmetics services sub-sector. Inflation in the transportation and communication component in September 2017 came primarily from higher prices of facilities and supporting transportation sub-sector

 

Meanwhile, deflation in the foodstuffs component in September 2017 mainly stemmed from lower prices of onion, chicken meat, garlic, eggs, tomato, chili, spinach, and watermelon. 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 downward trend still intact, as the inflation slightly decreased to 3.72% y-o-y in September 2017 compare 3.82% y-o-y in the previous month. Nevertheless, year to date inflation in January–September 2017 reached 2.66% higher than 1.97% for the same time frame in 2016.

 

 

CPI Outlook

We expect inflationary pressures still manageable in October 2017. This is due to the relatively stable prices of foodstuffs. The price of some foodstuffs decreased, such as cayenne pepper, red chili, onion, garlic, sugar, milk, and eggs. Nevertheless, the prices of some foods still show increases such as rice, beef, cooking oil, wheat, and instant noodle. Meanwhile, inflationary pressures stem from the rising price of gold jewelry along with rising gold prices in the international market. The impact of the rise in cigarette excise tariff early next year boosted cigarette prices. Furthermore, the weakening of Rupiah also triggered imported inflation. Based on these factors, we expect the consumer price index in October 2017 will reach 0.10% m-o-m, slightly lower than 0.13% m-o-m in September 2017. Meanwhile, we expect the yearly inflation rate in October 2017 will slightly decrease to 3.68% y-o-y from 3.72% y-o-y in September 2017. Looking ahead, we also expect the inflation may reach 3.83% y-o-y in the end of 2017.

 

Meanwhile, we also expect core inflationary pressures also remain benign in October 2017. The pressure comes from the increase in price of gold jewelry, housing rent, housing contract, and the impact of the Rupiah weakening. We expect core inflation in October 2017 may reach 0.16% m-o-m lower than 0.35% m-o-m in September 2017. Nevertheless, we expect the yearly core inflation in October 2017 will increase to 3.06% y-o-y from 3.00% y-o-y in the previous month. Forward looking, we still maintain core inflation projection at 3.20% by the end of 2017 due to relatively tame impact of electricity tariff increases and the government's success to control volatile foods prices.