[JAKARTA] INDONESIA recorded lower-than-expected inflation in 2023, on the back of a higher base last year, the country’s statistics department said on Tuesday (Jan 2).

Indonesia’s inflation rate declined to 2.61 per cent in December, from 2.86 per cent in November. The latest figure was lower than the 2.72 per cent forecast in a recent Reuters poll. December’s consumer price index remained within Bank Indonesia’s (BI) 2023 inflation target.

Core inflation, which strips out government-controlled prices and volatile food prices, also eased more than expected, to 1.8 per cent. This was the lowest level since December 2021, and compared with 1.85 per cent predicted in the poll. November’s core inflation was 1.87 per cent.

The acting head of the agency, Amalia Adininggar, said core inflation eased to a modest level due to lower inflation of housing prices, water and electricity bills.

On a month-on-month basis, inflation was 0.41 per cent. This was attributed to increased demand for food, beverages and tobacco during the seasonal year-end holiday.

The price of rice continued to contribute significantly, accounting for 0.53 per cent of total inflation. South-east Asia’s largest economy is facing a decline in production attributed to the El Nino weather effect.

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In its most recent meeting, Indonesia’s central bank said inflation is well under control. This provides the bank with the opportunity to shift its focus towards enhancing the stability of the rupiah, especially in the face of increasing geopolitical uncertainty.

Maybank Indonesia analysts estimated that the country’s inflation rate will remain moderate in 2024 at 3 per cent, within BI’s inflation target range for 2024 of 1.5 to 3.5 per cent.

Analysts expected BI is unlikely to reduce interest rates before the US does, however, considering the interest-rate gap remains at a historically low level.

“We still see positive catalysts for Indonesia in the coming year, such as the end of the cycle of high interest rates and large government cash balances,” said Maybank Indonesia in a note.

UOB Indonesia’s head economist, Enrico Tanuwidjaja, expects that BI’s rate will remain unchanged this year, given the global uncertainty and volatility surrounding the trajectory of inflation and exchange rate movements.

“We also believe that the potential upward risks from food inflation could still be a factor in slowing down the moderation of inflation,” he said.