Indonesia: Deflationary pressure remains in place – UOB

Economist Enrico Tanuwidjaja and Haris Handy at UOB Group reviewed the recent inflation figures in the Indonesian economy.

Key Quotes

“The downward trend in the annual inflation rate continued in August, as the COVID-19 pandemic ravages people’s purchasing power while consumer demand has yet to recover despite easing social restriction. Inflation print for August 2020 eased to 1.32% y/y vis-à-vis July’s 1.54% (the lowest since May 2000 at 1.20%). Meanwhile, the core annual inflation rate stood at 2.03% y/y, as the government administered prices were up by 1.03 % y/y and volatile prices fell by 1.09% y/y.”

“Since Indonesia confirmed its first COVID-19 cases in March and subsequently imposed the Large-Scale Social Restriction (Pembatasan Sosial Berskala Besar - PSBB), the country’s inflation has been slowing down. The downward trend in inflation was in line with the decision of many Indonesians to halt spending especially on non-essential goods due to the layoffs and furloughs.”

“Going forward, we expect the headline inflation to remain under control and gradually recover to near lower end of the government's 2.0-4.0% inflation target on the back of faster stimulus disbursement to boost the economic recovery. Nevertheless, downside risks remain as long as the consumers’ confidence is yet to return to pre-pandemic level, coupled with ineffective control of the virus spread/health protocol which led to tighter PSBB/containing measures.”