Inflation Update Indonesia: May Inflation Rises Beyond Expectation
Inflation in Indonesia accelerated higher than expected in May 2015. Based on the latest data from Statistics Indonesia (BPS), announced today, Indonesia’s consumer price index rose to 7.15 percent (y/y) in May, from 6.79 percent (y/y) in the preceding month. The primary reason for higher inflation is rebounding oil prices thus causing higher prices at fuel pumps. As fuel subsidies have been largely cut at the start of 2015, the recent rising global oil prices now cause serious inflationary pressures in Indonesia.
Other factors that brought inflationary pressure were higher prices for food, beverages and tobacco. Core inflation has remained stable at around 5 percent (y/y) since March.
Previously, analysts had estimated that Indonesian inflation would climb to around 7 percent (y/y) in May on the back of higher transportation costs and traditional price pressures ahead of the Islamic fasting month of Ramadan (which is set to start in June). However, few analysts expected to see a 0.50 percent (m/m) inflation rate in May.
The Ramadan month, subsequent Idul Fitri celebrations and the start of the new school year always bring heightened inflationary pressure in Indonesia in the June-August period.
In January 2015, the Indonesian government basically scrapped its decade-old fuel subsidy scheme for low-octane gasoline (premium), instead determining a monthly price that fluctuates in line with global oil prices. However, the government decided that the price of premium would stay at IDR 7,300 (USD $0.55) per liter in June, despite higher global oil prices, in consideration of the people. Given the slowing economy and seasonal price pressures during the Ramadan, the government left the price unchanged.
Bank Indonesia targets inflation in the range of 4.0 to 5.0 percent (y/y) in 2015. In mid-May, the central bank kept its benchmark interest rate (BI rate) at 7.50 percent in a bid to combat high inflation, the wide current account deficit, and limit possible capital outflows ahead of looming monetary tightening in the USA.
Inflation in Indonesia:
| Month | Monthly Growth 2013 |
Monthly Growth 2014 |
Monthly Growth 2015 |
| January | 1.03% | 1.07% | -0.24% |
| February | 0.75% | 0.26% | -0.36% |
| March | 0.63% | 0.08% | 0.17% |
| April | -0.10% | -0.02% | 0.36% |
| May | -0.03% | 0.16% | 0.50% |
| June | 1.03% | 0.43% | |
| July | 3.29% | 0.93% | |
| August | 1.12% | 0.47% | |
| September | -0.35% | 0.27% | |
| October | 0.09% | 0.47% | |
| November | 0.12% | 1.50% | |
| December | 0.55% | 2.46% | |
| Total | 8.38% | 8.36% | 0.42% |
Source: Statistics Indonesia (BPS)
Inflation in Indonesia 2008-2014:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| Inflation (annual percent change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 | 8.4 |
Source: World Bank