Headline inflation fell to 2,57% (yoy) in January 2024, approaching the midpoint of the new target of 2,5%. The reduced impact of the El-Nino weather phenomenon on food prices, the distribution of social assistance to control food volatility, and the reduced impact of end-of-year seasonality pushed inflation down in the first month of 2024. The trade balance is still in positive territory even though it has declined since April 2022. Considering The Fed will not reduce its policy interest rate in the near future, we think BI should maintain the BI Rate at 6,00% this month to maintain exchange rate stability.
Controlled Inflation, Result of Efforts to Lower Food Prices
In the first month of 2024, annual general inflation fell slightly to 2,57% (yoy) from 2,61% (yoy) in December 2023. This month's inflation rate is the lowest annual general inflation in the last three months, approaching the midpoint of the target inflation will only be 1,5% – 3,5% in 2024. The slowdown in inflation in January 2024 was driven by a decrease in price increases in the food, beverage and tobacco expenditure group (5,87% (yoy) in January 2024 compared to 6,18% (yoy) in December 2023) and the transportation expenditure group (1,11% (yoy) in January 2024 compared to 1,27% (yoy) in December 2023) as the seasonal effects of the Christmas and New Year holidays subside. Even though it is decreasing, the El-Nino weather phenomenon still has an impact on rice prices. The average retail price of rice in traditional markets increased by 15,82% (yoy) in January 2024, lower than the previous month which was 16,64% (yoy). The increase in rice prices contributed 0,57 percentage points to inflation this month. To manage the impact of rising rice prices, the distribution of 10 kilograms of social assistance rice has been extended by the Indonesian Government until June 2024. Please note that starting in 2024, inflation calculations will use the 2022 Cost of Living Survey (SBH) as the new basis to replace the 2018 SBH. Update SBH from 2018 to 2022 is expected to capture changes in lifestyle, especially due to the Covid-19 pandemic. The new inflation calculation now covers 150 cities compared to 90 cities in the previous calculation.
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