Indonesia: inflation seen around 3.5% in 2020 – UOB

According to Enrico Tanuwidjaja, Economist at UOB Group, inflation figures in Indonesia are expected to gyrate around 3.5% in the next year.

Key Quotes

“Indonesia’s annual inflation print for December 2019 eased more than expected to 2.72% y/y, marked as the slowest increase in consumer prices since March 2019. Food and transport-telecommunication inflation increased at a slower pace, which came as a surprise, considering Christmas and New Year holidays. Food inflation slowed to 4.28% y/y in December vs November’s 4.97% due to lower price of red chili, cayenne, and chicken. In addition, transportation-telecommunication inflation slowed to 0.17% y/y in December vs. November’s 0.87% due to lower telecommunication and delivery prices. Meanwhile, processed food, housing-electricity, and clothing inflation were relatively stable on annual basis at 3.97%, 1.75%, and 4.93% respectively. Core inflation, which exclude volatile food prices and administered prices, slowed slightly to 3.02% y/y in December from 3.08% a month earlier.”

“The latest figure brings the 2019 average inflation rate to 3.03%, which is slightly below our expectation at 3.1%. Overall, subdued energy prices and airport tariff adjustment helped keep price gains within the 2.5% – 4.5% central bank’s official target range. Going forward, Bank Indonesia expected that 2020’s inflation rate will be in the range of 2.0% – 4.0%, supported by controlled volatile inflation at low level, sufficient domestic production capacity, as well as reduced logistics cost amidst improvement in infrastructure. Meanwhile, the Ministry of Finance also put its macroeconomic assumption for 2020’s inflation at 3.1% (with growth assumption of 5.3% and oil price at USD65/bbl). For 2020, we forecast inflation to average 3.5% on the back of energy subsidy removal, expected rise in administered prices (which include electricity and cigarette excise), and potential recovery in demand.”