Bank Indonesia Expects Deflation in February 2016
The central bank of Indonesia (Bank Indonesia) expects to see deflation at 0.15 percent month-to-month (m/m) in February 2016. Bank Indonesia Governor Agus Martowardojo said lower (government) administered prices in combination with low core inflation will be the recipe for deflation in the second month of the year. The lower administered prices that are primarily the cause of deflation consist of fuel prices, air fares and 12-kilogram liquefied petroleum gas (LPG) canisters. In the first month of the year Indonesian inflation accelerated to 4.14 percent (y/y).
Regarding Bank Indonesia's inflation target for full-year 2016 (which is set between 3 and 5 percent year-on-year) Governor Martowardojo said he is convinced the target will be achieved as the world's crude oil prices are expected to remain low for the foreseeable future, while there seems to be a relatively limited impact of the El Nino weather phenomenon on Indonesia's food prices.
In the first month of the year inflation rose 0.51 percent (m/m), primarily due to higher prices of food products. In Indonesia there are traditionally two inflation peaks. One during the months of December-January amid rising consumption due to Christmas and New Year celebrations. The second peak comes in June-August when consumption rises due to Islamic celebrations and the start of the new school year.
Read Column: Analysis of Inflation in Indonesia
Eko Listianto, analyst at Indef, said the government needs to continue to monitor food price stability across the nation and improve the distribution networks between the various regions. For example, there are regions in Indonesia that have a surplus in rice, corn and chili production, while other regions are plagued by a deficit hence giving rise to local inflation. In this context, ongoing government-led infrastructure development is vital as distribution bottlenecks are the main source of high logistics costs, particularly outside the island of Java.
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% | |
| 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% | 0.54% | |
| July | 3.29% | 0.93% | 0.93% | |
| August | 1.12% | 0.47% | 0.39% | |
| September | -0.35% | 0.27% | -0.05% | |
| 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 2008-2015:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
| Inflation (annual percent change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 | 8.4 | 3.4 |
| Bank Indonesia Target (annual percent change) |
5.0 | 4.5 | 5.0 | 5.0 | 4.5 | 4.5 | 4.5 | 4.0 |
Sources: Statistics Indonesia and Bank Indonesia