BPS Head Suhariyanto commented on the country's latest inflation data. He stated that despite the small rise in September, Indonesian inflation remains under control. In the first nine months of the year, the pace of inflation has now accumulated to 1.97 percent (calendar year inflation). If inflation remains stable in the last quarter of the year, then the targets set by Indonesia's central bank (Bank Indonesia) and the central government will be achieved.

Indonesia has two traditional peaks in inflation. The first one being the June-August period when demand rises amid Islamic celebrations (Ramadan and Idul Fitri) as well as preparations for the start of the new school year. The second peak comes in the December-January period when Christmas and New Year celebrations encourage consumer spending.

In September 2016 Indonesian inflation was primarily caused by the education segment (due to rising college fees) and rising prices of instant food products, cigarettes and beverages.

Meanwhile, Indonesia's annual core inflation rate, which excludes administered and volatile food prices, was recorded at 3.21 percent (y/y) in September, down from the 3.32 percent recorded in August.

Prior to the release of Indonesia's September 2016 inflation data, analysts expected headline inflation to rise around 0.2 percent (m/m) due to growing prices of several agricultural commodities (particularly rice, chilies, cooking oil, and onions) as weaker-than-usual harvests have curtailed the supply-side. There are still some concerns that wetter-than-usual weather (the La Nina phenomenon) can disturb agricultural output in Indonesia in the last quarter of 2016.

Bank Indonesia still expects Indonesia's full-year inflation to reach 3 percent (y/y) in 2016, well within its target range of 3 - 5 percent (y/y). Indonesia's low inflation was also a key reason why Bank Indonesia has been able to lower its interest rate environment this year.

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%         -0.02%
September         -0.35%          0.27%         -0.05%          0.22%
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

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