Indonesia’s inflation slows to 2.28% in September, close to official forecast
[JAKARTA] Indonesia’s annual inflation rate cooled to 2.28 per cent in September, the lowest since February last year and near the lower end of the target range set by the country’s central bank.
The latest reading of the consumer price index – a broad basket of goods and services prices used to measure inflation – was down from 3.3 per cent in August. This was mainly due to base effects given the roughly 30 per cent hike in retail fuel prices implemented in September 2022 that saw inflation peak at nearly 6 per cent that month.
Bank Indonesia’s (BI) inflation target for 2023 is between 2 per cent and 4 per cent, with next year’s target set for between 1.5 per cent and 3.5 per cent.
In an effort to rein in inflationary pressures, BI hiked interest rates by a total of 225 basis points between January and August this year.
Amalia Adininggar Widyasanti, the acting head of the agency, said at a press conference that higher petrol, rice and household fuel prices in September contributed the most to inflation.
At the start of last month, the Indonesian government raised the prices of non-subsidised fuel products. Fuel and rice are among the commodities that have a substantial impact on inflation in South-east Asia’s largest economy.
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The price of rice has been going up in recent months due to smaller supplies as the ongoing dry weather has impacted the harvests across the country.
Last month, the National Food Agency reported a 7.3 per cent increase in the average price of rice compared to August.
The government plans to import one million tonnes of rice from China, following a decision to bring in the food staple from neighbouring countries such as Thailand and Vietnam.
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Putera Satria Sambijantoro, an economist at Bahana Sekuritas, said that the increase in rice prices is expected to contribute to inflation of up to 0.25 per cent for this year.
“With the anticipated reduction in production in the coming months, the continued increase in rice prices remains a possibility. Consequently, this could potentially impact people’s purchasing power in the fourth quarter of 2023,” he said.
DBS Bank economist Radhika Rao was quoted as saying in a Reuters report that the sharp deceleration in Indonesia‘s September inflation was along expected lines and driven purely by base effects.
“BI will take comfort from easing inflation,” she said, adding that she expected no immediate policy easing due to the rupiah’s weakness against the US dollar.
Analysts at OCBC Bank wrote in a report on Monday (Oct 2) that price pressures in Indonesia are “still sticky” given rising global oil prices and elevated food prices.
“This will keep BI vigilant of inflationary and external pressures in the coming months,” said the bank’s Asean economists Lavanya Venkateswaran and Ahmad Enver.
They noted that BI’s focus on external stability was clear at its Sep 21 meeting, with the expectation that the US Fed will hike its policy rate by 25 basis points in November.
“Consequently, (the rupiah’s) depreciation pressures are likely to persist. This makes the case for BI to manoeuvre towards a more dovish policy stance less compelling. As such, we expect BI to remain on hold for the rest of 2023 but see a cumulative 100 basis points in rate cuts forthcoming in the first quarter of 2024.”
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