Indonesia's inflation fell below 3% in September due to the high base effect from the same period last year. However, the inflation trend underscores the government's ongoing efforts to maintain price stability amidst various challenges, especially the El Nino weather phenomenon which is predicted to peak in September. Indonesia also managed to maintain a high trade surplus in September 2023, marking the 41st consecutive month of surplus. However, dynamics in the United States market related to the potential for interest rate increases in the coming months have resulted in a surge in capital outflows from the Indonesian market in recent weeks, as seen in the sale of shares and bonds worth USD1,35 billion between mid-September and mid-October. It is important to note that pressure on the Rupiah will continue for some time to come, which will likely pose challenges for the central bank in the coming months. Taking into account the pressure on the Rupiah, as well as the need to maintain the benchmark interest rate gap with the Fed, we see that Bank Indonesia needs to maintain its policy interest rate at 5,75% while continuing to implement macroprudential policies to stabilize short-term pressure on price levels and values. swap.
Inflation Drops Below 3% in September 2023 due to High-Base Effect
Headline inflation in September reached its lowest point in the last 19 months and was recorded at 2,28% (yoy), down from 3,27% (yoy) in August 2023. This decline was mainly caused by the high-base macroeconomic effect of material price adjustments subsidized fuel in September 2022. However, monthly inflation increased slightly to 0,19% (mtm) after experiencing deflation of 0,02% (mtm) in the previous month. This increase in monthly inflation was mainly driven by the volatile price component which increased to 0,37% (mtm) this month and the government regulated price component also increased to 0,23% (mtm). The increase in price components regulated by the government was driven by kretek cigarette commodities and fuel prices, including Pertamax, Pertamax Turbo, Pertamina Dex, and Pertamax Green. Meanwhile, the increase in the volatile price component was driven by an increase in rice prices due to the El Nino weather phenomenon which was starting to show its impact as well as soaring beef prices. Further increases in inflation were restrained by deflation in the pure chicken egg, various onions and various chili groups. Core inflation in September 2023 was recorded at 0,12% (mtm), relatively stable compared to the previous month's inflation of 0,13% (mtm), which was caused by an increase in the price of mobile phone credit and education costs.
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