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Asia: Inflation In Indonesia Hit 4.4%. What Can We Expect From Bank Indonesia?

Asia: Inflation In Indonesia Hit 4.4%. What Can We Expect From Bank Indonesia?| FXMAG.COM
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Table of contents

  1. June headline inflation
    1. June inflation accelerates faster than expected, settles at 4.4%
      1. BI running out of room to keep rates unchanged
        1. Window to pause is closing

          Headline inflation accelerated past target but core inflation remains relatively subdued 

          asia inflation in indonesia hit 4 4 what can we expect from bank indonesia grafika numer 1asia inflation in indonesia hit 4 4 what can we expect from bank indonesia grafika numer 1
          Inflation in Indonesia will likely pick up this year
          4.4%

          June headline inflation

           

          Higher than expected

          June inflation accelerates faster than expected, settles at 4.4%

          Price pressures pushed headline inflation to 4.4%, accelerating past market expectations for a 4.2% rise.  Food inflation was the main driven for the upside surprise with food prices up 8.3%.  Transportation was the other major contributor to faster inflation, rising 5.5% as the global energy price surge filtered through to the domestic economy.  Despite the breach of the target by headline inflation, core inflation stayed relatively subdued at 2.6%. 

          The authorities believe that imported inflation has yet to manifest onshore but pressure on IDR in recent weeks will still likely fuel additional inflation pressure.  We expect both headline and core inflation to continue to creep higher with core inflation likely cresting the 3% handle by August.

          BI running out of room to keep rates unchanged

          asia inflation in indonesia hit 4 4 what can we expect from bank indonesia grafika numer 2asia inflation in indonesia hit 4 4 what can we expect from bank indonesia grafika numer 2
          Source: Badan Pusat Statistik

          Window to pause is closing

          Bank Indonesia (BI) has refrained from hiking policy rates so far this year, citing the need to support the domestic economic recovery.  Despite the pickup in headline inflation, BI has justified the reluctance to hike rates by pointing to well-behaved core inflation readings. 

          BI may still have some room to keep rates unchanged but we believe the eventual rise of core inflation will trigger a mild rate hike cycle from BI to help shore up currency stability.  We believe the central bank will hike rates as early as August, although BI’s hike path will not likely be as aggressive as others in the region. 

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          Tags
          Indonesian CPI Emerging Markets Bank Indonesia

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          This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more


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