And so, annual inflation of Indonesia continued to ease to the level of 3.08 percent year-on-year (y/y) in July 2023, from 3.52 percent (y/y) in June 2023. Considering the Indonesian government cut fuel subsidies back in September 2022 (which then caused monthly inflation to reach 1.17 percent m/m in September 2022), we should see annual headline inflation of Indonesia ease further (toward 2.0 percent y/y) in the next two months.

So far in 2023, headline inflation has accumulated to 1.45 percent in the first seven months of the year. This is a very low level of inflation by Indonesian standards. And, we are unlikely to see sudden changes in the second half of the year. Yes, the El Nino weather phenomenon is able to somewhat disrupt the supply of food commodities in the second half of the year. However, at this moment we doubt to see any serious inflationary pressures. And we remain confident that the government will do its best to safeguard low inflation ahead of the legislative and presidential elections that are scheduled for February 2024 as this is good ‘advertisement’ for the political parties that form the incumbent cabinet.

We also decided to cut our projection for Indonesian inflation in full-year 2023 from 3.00 percent (y/y) to the range of 2.50 – 3.00 percent (y/y). And it is a very cautious revision because there is certainly room to argue that Indonesian inflation will have difficulty to pass well beyond 2.0 percent (y/y) at the end of this year. Therefore, we expect to make another revision within three months.


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