The central bank of Indonesia (Bank Indonesia) expects Indonesia's headline inflation to ease in March 2017 as food prices are under control and can therefore offset the inflationary pressures that are caused by administered price adjustments (higher electricity tariffs). In February 2017 Indonesia's inflation rate accelerated to 3.81 percent (y/y) due to the ongoing impact of the higher electricity tariffs that were introduced by the government in January as well as a number of big floods that curtailed distribution channels across parts of Sumatra and Java.
Based on a survey of Bank Indonesia, inflation in Southeast Asia's largest economy reached 0.18 percent month-on-month (m/m) in the first two weeks of March.
Earlier, Bank Indonesia said it was slightly concerned about the impact of higher electricity tariffs on the nation's inflation pace in March 2017 as the government implemented the second phase of its gradual electricity tariff increase program for 900-VA household customers. Indonesia's state-owned electricity company Perusahaan Listrik Negara (PLN) decided to raise the electricity price for 900-VA households three times this year in order to cut energy subsidies and ensure that these subsidies are indeed channeled to the right people.
However, with Bank Indonesia now suggesting that inflation may ease slightly in March from 3.83 percent (y/y) in February 2017 to an estimated 3.81 percent (y/y) in March, it seems like the central bank is not concerned anymore about inflationary pressures in the remainder of March. Meanwhile, with the exception of chili peppers, food prices are under control.
In the January-February 2017 period electricity prices for 900-VA households rose 31 percent. In the second phase of the program, in March 2017, prices are raised by 32.7 percent. Lastly, in the May-June 2017 period electricity prices will increase by 42.9 percent. Afterwards, starting from 1 July 2017, these 900-VA subscribers group will be subject to an auto-adjusted electricity tariff scheme just like the other 12 non-subsidized customer groups.
Bank Indonesia is still confident that at the end of 2017 Indonesian inflation will fall comfortably within its target range of 3 - 5 percent (y/y).
Inflation in Indonesia:
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
(annual % change)
(annual % change)
Source: Bank Indonesia