Consumer Price Index Indonesia: Deflation at 0.18% in September 2018
Based on the latest data of Indonesia's Statistics Agency (BPS), Indonesia experienced deflation of 0.18 percent month-on-month (m/m) in September 2018, a figure that exceeded our expectations. Consequently, Indonesia's annual inflation slowed to a two-year low of 2.88 percent (y/y), down from 3.20 percent (y/y) in August 2018. Year to date, Indonesian inflation eased to 1.94 percent in the January-September 2018 period.
Indonesian deflation was mainly caused by a decline in a number of food prices, such as chicken meat, shallots, fresh fish, vegetables, and cayenne pepper. Similar to August - when overall monthly deflation was recorded at 0.05 percent - prices are still on the decline as there is plenty of supply, while demand has eased after the Ramadan and Eid al-Fitr period. The foodstuff component of BPS in fact recorded a significant 1.62 percent of deflation on a month-on-month basis.
Meanwhile, the transportation, communication and financial services component was the only other component that experienced deflation in September 2018. It fell 0.5 percent (m/m). This was particularly caused by further declining air freight rates.
Biggest inflationary pressures in September stemmed from the education, recreation and sports category (+0.54 percent m/m). This was attributed to the start of the new school year. BPS detected an increase in tuition fees for colleges and universities.
Indonesia's September 2018 Inflation per Expenditure Group:
• Foodstuffs; -1.62 percent (m/m)
• Processed food, beverages, cigarette and tobacco; +0.29 percent (m/m)
• Housing, water, electricity, gas and fuel; +0.21 percent (m/m)
• Clothing; +0.27 percent (m/m)
• Health; +0.41 percent (m/m)
• Education, recreation and sports; +0.54 percent (m/m)
• Transportation, communication and financial services; -0.05 percent (m/m).
Read also: Analysis of Inflation in Indonesia
Indonesian inflation is bound to fall within the central bank's target range of 2.5 - 4.5 percent (y/y) in full-year 2018 (and most likely it will approach the bottom of Bank Indonesia's target range).
Meanwhile, Indonesia's core inflation, which excludes volatile food prices and state-controlled prices, was recorded at 2.82 percent (y/y) in September 2018, down from 2.90 percent (y/y) one month earlier.
In late-September 2018 Bank Indonesia raised its key interest rate again (the fifth rate hike this year) by 25 basis points to 5.75 percent. In total the central bank has raised its benchmark rate by 150 basis points so far this year. The tighter monetary policy is a strategy to defend the rupiah (and curtail the current account deficit). However, it is likely to add to deflationary pressures in the foreseeable future.
Considering higher-than-expected deflation in September (and considering there are only three more months to go in 2018) Indonesia's full-year 2018 inflation is likely to be lower than our earlier forecasts. While, last month Indonesia Investments had already revised its inflation forecast to the range of 3.5 - 4.0 percent (down from our initial outlook of 4.0 - 4.5 percent), we feel another revision is needed. Our new outlook for Indonesia's full-year 2018 inflation is now set at 3.0 - 3.5 percent.
Inflation in Indonesia:
| Month | M/M Growth 2018 |
| January | 0.62% |
| February | 0.17% |
| March | 0.20% |
| April | 0.10% |
| May | 0.21% |
| June | 0.59% |
| July | 0.28% |
| August | -0.05% |
| September | -0.18% |
| Year-to-Date | 1.94% |
Headline Consumer Price Index of Indonesia:
| Month | M/M Growth 2013 |
M/M Growth 2014 |
M/M Growth 2015 |
M/M Growth 2016 |
M/M Growth 2017 |
| January | 1.03% | 1.07% | -0.24% | 0.51% | 0.97% |
| February | 0.75% | 0.26% | -0.36% | -0.09% | 0.23% |
| March | 0.63% | 0.08% | 0.17% | 0.19% | -0.02% |
| April | -0.10% | -0.02% | 0.36% | -0.45% | 0.09% |
| May | -0.03% | 0.16% | 0.50% | 0.24% | 0.39% |
| June | 1.03% | 0.43% | 0.54% | 0.66% | 0.69% |
| July | 3.29% | 0.93% | 0.93% | 0.69% | 0.22% |
| August | 1.12% | 0.47% | 0.39% | -0.02% | -0.07% |
| September | -0.35% | 0.27% | -0.05% | 0.22% | 0.13% |
| October | 0.09% | 0.47% | -0.08% | 0.14% | 0.01% |
| November | 0.12% | 1.50% | 0.21% | 0.47% | 0.20% |
| December | 0.55% | 2.46% | 0.96% | 0.42% | 0.71% |
| Total | 8.38% | 8.36% | 3.35% | 3.02% | 3.61% |
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target:
| 2014 | 2015 | 2016 | 2017 | 2018 | |
| Inflation (annual % change) |
8.4 | 3.4 | 3.0 | 3.6 | |
| BI Target (annual % change) |
4.5 | 4.0 | 4.0 | 4.0 | 3.5 |
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Inflation (annual % change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 |
| BI Target (annual % change) |
5.0 | 4.5 | 5.0 | 5.0 | 4.5 | 4.5 |
Source: Bank Indonesia