Consumer Price Index Update Indonesia: Deflation in August?
The central bank of Indonesia (Bank Indonesia) stated that up to the third week of August deflation reached 0.06 percent month-to-month (m/m). Juda Agung, Executive Director at Bank Indonesia's Economic and Monetary Policy Department, said consumer demand has diminished after previously peaking during the Islamic Ramadan and Idul Fitri celebrations in June and July. Usually the month of August sees inflationary pressures (caused by the new school year). This year, however, it may be the first time in many years that August brings deflation.
This would mean that the annual inflation pace in Indonesia would ease from 3.21 percent year-on-year (y/y) in July 2016 to around 3.0 percent (y/y) in August. This would be in sharp contrast to annual inflation of 7.18 percent (y/y) that we saw in August 2015 (when inflation was still high after the government's fuel subsidy adjustments, made in November 2014).
According to data from Indonesia's Trade Ministry, there exist some slight inflationary pressures from cooking oil and chili prices in the fourth week of August. Prices of eggs, chicken meat and red onions, on the other hand, have eased, while the price of rice remained stable.
Bank Indonesia's inflation target for full-year 2016 is set at the range of 3 - 5 percent (y/y). However, given the results so far this year, inflation could even fall below 3 percent (y/y) at the year-end provided that there occur no sudden shocks (for example due to the La Nina weather phenomenon).
Low inflation could be a reason for the central bank to lower its benchmark interest rate at the next policy meeting. Meanwhile, core inflation has remained stable at around 3.5 percent (y/y) since the start of the year. However, the Indonesian rupiah is expected to remain volatile due to uncertainty about monetary easing in the USA and this could be a reason for Bank Indonesia to leave its monetary policy approach unchanged at the next policy meeting.
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% | 0.69% |
| 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