Indonesia's inflation rate in June 2017 was higher than previously estimated. The nation's Statistics Agency (BPS) announced on Monday morning (03/07) that monthly inflation was recorded at 0.69 percent last month, while estimates ranged between 0.50 - 0.60 percent (m/m). Traditionally, Indonesian inflation tends to be high in June as people's consumption rises amid the Ramadan and Idul Fitri festivities.
On an annual basis, Indonesia's inflation inched up to 4.37 percent in June 2017, from 4.33 percent (y/y) in the preceding month. Despite higher-than-expected inflation BPS Head Suhariyanto said Indonesian inflation was "more manageable during this year's Islamic celebrations compared to the past three years". Inflation in June was particularly attributed to rising transportation tariffs, rising electricity prices and higher prices of clothes. Meanwhile the rise of food prices was limited. Although showing a rising trend, inflation remained within the central bank's wide target range of 3 - 5 percent (y/y) for 2017.
Meanwhile, Indonesia's June annual core inflation (core inflation excludes government administered and volatile food prices) cooled to 3.13 percent (y/y) from a pace of 3.20 percent (y/y) in May. The slight decline of core inflation should somewhat ease concerns. So far this year, headline inflation has surged significantly higher compared to core inflation due to the government's electricity price adjustments.
Still, considering Indonesian inflation remains relatively high, while Indonesia's economic growth could accelerate to 5.2 - 5.3 percent (y/y) in 2017 and the US Federal Reserve is expected to implement more interest rate hikes this year, the central bank of Indonesia (Bank Indonesia) may decide for a 25 basis-points rate hike before the end of the year. This would support the rupiah in times of rising US dollar strength (brought about by monetary tightening in the USA).
Inflation in Indonesia:
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
(annual % change)
(annual % change)
Source: Bank Indonesia