The central bank of Indonesia (Bank Indonesia) estimates that inflation will ease below seven percent year-on-year (y/y) in September 2015 on the back of lower prices of raw foods and lower administered prices (including fuel and electricity) in the post the Ramadan and Idul Fitri period. Bank Indonesia Governor Agus Martowardojo said the central bank expects inflation at around 6.95 percent (y/y) in September.
Inflation in Indonesia was still high at 7.18 percent (y/y) in August due to subsidized fuel price reforms conducted in late 2014 and early 2015, leading to higher transportation costs. The impact of these reforms on inflation should wane in the last couple of months of 2015 and therefore Bank Indonesia's inflation target is still within reach (the central bank targets inflation in the range of 3 to 5 percent y/y) in 2015.
Traditionally, Indonesia sees low inflation rates in the months September, October and November as inflationary pressures caused by increased consumer spending in the Ramadan, Idul Fitri and new school season cease. In December and January consumer spending typically increases again (and inflation rises accordingly) due to Christmas and New Year celebrations.
Inflationary pressure in 2015 also exists because of imported inflation due to the weak rupiah which has depreciated almost 16 percent against the US dollar so far in 2015. Bank Indonesia kept its key interest rate at 7.50 percent at its September Board of Governor's meeting in an effort to combat high inflation, curb the country's wide current account deficit and provide some support to the ailing rupiah by limiting capital outflows.
Inflation in Indonesia:
|Month|| Monthly Growth
| Monthly Growth
| Monthly Growth
Source: Statistics Indonesia (BPS)
Inflation in Indonesia 2008-2014:
(annual percent change)
Source: World Bank