We already expected Indonesia's inflation rate would be high in January 2017 due to higher food prices as well as higher administered prices (electricity tariffs, fuel prices and vehicle registration fees). However, inflation realization in the first month of 2017 exceeded our expectations. Indonesia's statistics bureau (BPS) announced around noon on Tuesday (01/02) that the nation's monthly inflation accelerated to 0.97 percent (m/m) in January 2017, while annual (headline) inflation rose to 3.49 percent (y/y).
Earlier we predicted an inflation rate between 0.60 and 0.70 percent (m/m) for January 2017. However, BPS said Indonesian inflation accelerated more rapidly on the back of rising prices in all categories, but especially in the categories (1) transportation, communication and financial services, (2) housing, water & electricity, and (3) food.
Last month the Indonesian government continued with its quest to adjust its spending on subsidies and therefore raised both electricity tariffs (for 900 VA households) and fees for vehicle registration. Next month another electricity tariff hike is planned. This time the tariff for the postpaid types will be raised, which is estimated to bring more inflationary pressures compared to the prepaid type hike last month.
Indonesia traditionally experiences two peaks of inflation every year: (1) the December-January period when consumption rises amid Christmas and New Year celebrations (while in 2017 Chinese New Year also fell in January) and (2) the June-August period amid the Ramadan, Idul Fitri celebrations as well as the start of the new school year.
Read more: Analysis of Inflation in Indonesia
Meanwhile, Indonesia's core inflation, which excludes administered and volatile food prices, rose by 0.56 percent (m/m) or by 3.35 percent (y/y) in the first month of 2017, up from an annual pace of 3.07 percent (y/y) recorded in the preceding month.
Indonesia's annual inflation pace (3.49 percent y/y in January 2017) is still comfortably within the central bank's target range of 3 - 5 percent (y/y). However, we expect to see inflation rising toward 5 percent (y/y) later this year due to more administered price adjustments and imported inflation.
Inflation in Indonesia:
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
(annual % change)
(annual % change)
Source: Bank Indonesia