Indonesia: Weak demand keeps inflation subdued – UOB

UOB Group’s Economist Enrico Tanuwidjaja and Haris Handy reviewed the latest inflation figures in Indonesia.

Key Quotes

“Inflation print for July 2020 eased to 1.54% y/y vis-à-vis June’s 1.96%, as consumption remained sluggish amidst the COVID-19 pandemic. This also marked the first monthly deflation (at -0.1% m/m) seen in 2020. Core inflation slowed to 2.07% y/y in July vs. June’s 2.26%, while volatile inflation dipped to 0.35% y/y in July vs. 2.32% a month earlier.”

“Although large scale social restriction (“Pembatasan Sosial Berskala Besar” – PSBB) has eased in July, consumer spending remains low. Out of 90 cities, 61 cities experienced monthly deflation, which occured mostly in Java and Sumatera region.”

“Going forward, we expect the headline inflation to remain under control. Basic needs remain as top priority as consumers are still hesitant to purchase non-essential goods. The central government and regional administrations are expected to maintain the price stability. Overall, with inflation likely to stay around the lower end of the government's 2.0-4.0% inflation target.”