Consumer Price Index Indonesia Update: 3.45% y/y Inflation in June
Inflation in Indonesia accelerated slightly more than expected last month. According to the latest data from Statistics Indonesia (BPS), inflation reached 3.45 percent (y/y) in June 2016, up from 3.33 percent (y/y) in the preceding month. Initially, Indonesia's monthly inflation pace in June was forecast above 1 percent. However, over the past week estimates were cut to around 0.55 percent (m/m) as food prices were largely under control (even though prices of some staple foods - such as chicken meat and eggs - were still rising).
One of the two peaks of inflation in Indonesia traditionally occurs in the June-August period due to the impact of rising consumption amid the holy Islamic Ramadan month, Idul Fitri celebrations and the new school year (the other inflation peak occurs in December-January due to rising consumption amid Christmas and New Year celebrations). BPS Chairman Suryamin said Indonesia's June inflation was mainly caused by higher food prices and higher transportation costs (ahead of Idul Fitri many Indonesians travel back to their places of origin, a tradition called mudik in Indonesian).
Indonesia's 0.66 percent (m/m) inflation in June 2016 was the highest June inflation pace in the past three years. However, this is due to the Idul Fitri being organized one and a half weeks earlier in 2016 compared to last year. As such June will feel a heavier impact this year in terms of inflation compared to previous years.
Meanwhile, the nation's core inflation, which excludes administered and volatile food prices, stood at 3.49 percent (y/y) in June, in line with estimates. On a monthly basis, Indonesia's core inflation was recorded at 0.33 percent in June.
Inflation in Indonesia:
| Month | Monthly Growth 2013 |
Monthly Growth 2014 |
Monthly Growth 2015 |
Monthly Growth 2016 |
| January | 1.03% | 1.07% | -0.24% | 0.51% |
| February | 0.75% | 0.26% | -0.36% | -0.09% |
| March | 0.63% | 0.08% | 0.17% | 0.19% |
| April | -0.10% | -0.02% | 0.36% | -0.45% |
| May | -0.03% | 0.16% | 0.50% | 0.24% |
| June | 1.03% | 0.43% | 0.54% | 0.66% |
| July | 3.29% | 0.93% | 0.93% | |
| August | 1.12% | 0.47% | 0.39% | |
| September | -0.35% | 0.27% | -0.05% | |
| October | 0.09% | 0.47% | -0.08% | |
| November | 0.12% | 1.50% | 0.21% | |
| December | 0.55% | 2.46% | 0.96% | |
| Total | 8.38% | 8.36% | 3.35% |
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank Target 2008-2016:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Inflation (annual % change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 | 8.4 | 3.4 | |
| Bank Indonesia Target (annual % change) |
5.0 | 4.5 | 5.0 | 5.0 | 4.5 | 4.5 | 4.5 | 4.0 | 4.0 |
Source: Bank Indonesia
The central bank of Indonesia (Bank Indonesia) targets an inflation pace in the range of 3 - 5 percent (y/y) in full-year 2016. Last week, a Bank Indonesia official said full-year 2016 inflation may remain below 4 percent and therefore there seems to be more room for monetary easing in Southeast Asia's largest economy. Bank Indonesia already cut its benchmark interest rate (BI rate) four times this year, each time by 25 basis points, from 7.50 percent at the year-start to 6.50 percent in June. These moves were possible because inflation, the current account deficit and the rupiah have been stable or improving so far this year.
In August Bank Indonesia will adopt the seven-day reverse repurchase rate as its new benchmark (cut to 5.25 percent at the June policy meeting).
Read more: Bank Indonesia Adopts New Reference Rate: 7-day Reverse Repurchase Rate