Monthly Inflation:”Slightly Increase”
CPI Review
Consumer Price Index (CPI) in October 2017 increased due to the rising prices of cost of education, cigarette, and electricity tariff. On the other hand, the foodstuffs prices still fell for three consecutive months. Monthly inflation reached 0.01% m-o-m, lower from 0.13% m-o-m in the preceding month. Based component, the inflation was posted by the education component increased by 0.16% m-o-m, the clothing component rose by 0.18% m-o-m, and the prepared food component rose by 0.28% m-o-m. Furthermore, the housing component experienced rose by 0.18% compared to preceding month and the medical care component increased by 0.21% m-o-m. Meanwhile, the deflation was posted by the foodstuffs component decreased by 0.45% m-o-m and the transportation and communication component experienced fell by 0.13% m-o-m.
Inflation in the education, recreation and sports component in October 2017 mainly stemmed from higher prices of tuition fees (academy/university). Inflation in the clothing component in October 2017 came primarily from higher prices of man clothing sub-sector.
Furthermore, inflation in the prepared foods component in October 2017 mainly stemmed from higher prices of noodles, rice with meal, cigarette, white cigarette, and filter cigarette. Inflation in the housing component in October 2017 came primarily from higher prices of electricity tariff. Inflation in the medical care component in October 2017 still came primarily from higher price of medicines sub-sector.
Meanwhile, deflation in the foodstuffs component in October 2017 mainly stemmed from lower prices of chicken meat, onion, fish, garlic, eggs, tomato, potato, chili, beef, and watermelon. We believe the price decrease in these products were mainly due to
a. Higher domestic supply
b. Lower domestic demand
Deflation in the transportation and communication component in October 2017 came primarily from lower prices of air freights rates.
On a yearly basis, inflation remains in check with the downward trend still intact, as the inflation slightly decreased to 3.58% y-o-y in October 2017 compare 3.72% y-o-y in the previous month. Nevertheless, year to date inflation in January–October 2017 reached 2.67% higher than 2.11% for the same time frame in 2016.
CPI Outlook
We expect inflationary pressures slightly increase in November 2017. This was triggered by rising foodstuffs prices after falling for three consecutive months. The price of foodstuffs increased, such as such as rice, onion, garlic, red pepper, chili, instant noodles, milk, beef, chicken meat, and eggs. Furthermore, the increase in inflationary pressure this month was also triggered by rising Toll road tariffs. Meanwhile, the price of gold in the domestic market is relatively stable in November 2017. The impact of the rise in cigarette excise tariff early next year still boosted cigarette prices. Based on these factors, we expect the consumer price index in November 2017 will reach 0.31% m-o-m, higher than 0.01% m-o-m in October 2017. However, we expect the yearly inflation rate in November 2017 will decrease to 3.42% y-o-y from 3.58% y-o-y in October 2017. Looking ahead, we expect the inflation may reach 3.73% y-o-y in the end of 2017.
Meanwhile, we also expect core inflationary pressures also slightly increase in November 2017. The pressure comes from the increase in price of cigarette, housing rent, housing contract, and Toll road tariffs. We expect core inflation in November 2017 may reach 0.22% m-o-m slightly higher than 0.17% m-o-m in October 2017. Furthermore, we expect the yearly core inflation in November 2017 will increase to 3.14% y-o-y from 3.07% 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.
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