The central bank of Indonesia (Bank Indonesia) expects Indonesia's inflation rate to rise to 4.36 percent year-on-year (y/y) by the end of 2017, a significant jump compared to the 3.02 percent (y/y) inflation rate in 2016 but still within the initial target range of Bank Indonesia (that is set at a wide range of 3 - 5 percent y/y). According to the latest data from Indonesia's Statistics Agency (BPS), Indonesia's annual inflation rate rose to 4.33 percent (y/y) in May, up from 4.17 percent (y/y) in the preceding month.
The main inflationary pressures in 2017 stem from administered price adjustments as the central government cut electricity subsidies in its bid to further curb energy subsidies and find more funds for structural investment, such as infrastructure and social development in Indonesia. Also the higher tax for vehicle registration added some inflationary pressures this year.
Meanwhile, Bank Indonesia Governor Agus Martowardojo stated that food prices are under control in Indonesia. Provided these prices remain under control, then it should be relatively easy for the nation's inflation rate to achieve the target.
Bank Indonesia's latest full-year inflation target for Indonesia is in line with the World Bank's latest forecast of 4.3 percent (y/y), while the International Monetary Fund put its latest inflation outlook for Indonesia at 4.5 percent (y/y) in 2017.
Indonesia's Chief Economics Minister Darmin Nasution said it is important for inflation to remain low as that would push credit rates lower and thus encourage demand for credit in Southeast Asia's largest economy.
Inflation in Indonesia:
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
(annual % change)
(annual % change)
Source: Bank Indonesia