On an annual basis, Indonesia's inflation inched up to 4.37 percent in June 2017, from 4.33 percent (y/y) in the preceding month. Despite higher-than-expected inflation BPS Head Suhariyanto said Indonesian inflation was "more manageable during this year's Islamic celebrations compared to the past three years". Inflation in June was particularly attributed to rising transportation tariffs, rising electricity prices and higher prices of clothes. Meanwhile the rise of food prices was limited. Although showing a rising trend, inflation remained within the central bank's wide target range of 3 - 5 percent (y/y) for 2017.

Meanwhile, Indonesia's June annual core inflation (core inflation excludes government administered and volatile food prices) cooled to 3.13 percent (y/y) from a pace of 3.20 percent (y/y) in May. The slight decline of core inflation should somewhat ease concerns. So far this year, headline inflation has surged significantly higher compared to core inflation due to the government's electricity price adjustments.

Still, considering Indonesian inflation remains relatively high, while Indonesia's economic growth could accelerate to 5.2 - 5.3 percent (y/y) in 2017 and the US Federal Reserve is expected to implement more interest rate hikes this year, the central bank of Indonesia (Bank Indonesia) may decide for a 25 basis-points rate hike before the end of the year. This would support the rupiah in times of rising US dollar strength (brought about by monetary tightening in the USA).

Inflation in Indonesia:

Month M/M Growth
      2013
M/M Growth
      2014
M/M Growth
      2015
M/M Growth
      2016
M/M Growth
      2017
January      1.03%      1.07%     -0.24%      0.51%      0.97%
February      0.75%      0.26%     -0.36%     -0.09%      0.23%
March      0.63%      0.08%      0.17%      0.19%     -0.02%
April     -0.10%     -0.02%      0.36%     -0.45%      0.09%
May     -0.03%      0.16%      0.50%      0.24%      0.39%
June      1.03%      0.43%      0.54%      0.66%      0.69%
July      3.29%      0.93%      0.93%      0.69%
August      1.12%      0.47%      0.39%     -0.02%
September     -0.35%      0.27%     -0.05%      0.22%
October      0.09%      0.47%     -0.08%      0.14%
November      0.12%      1.50%      0.21%      0.47%
December      0.55%      2.46%      0.96%      0.42%
Total      8.38%      8.36%      3.35%      3.02%      2.35%

Source: Statistics Indonesia (BPS)

Inflation in Indonesia and Central Bank (BI) Target 2008-2016:

  2008 2009 2010 2011 2012 2013 2014 2015 2016
Inflation
(annual % change)
 9.8  4.8  5.1  5.4  4.3  8.4  8.4  3.4  3.0
BI Target
(annual % change)
 5.0  4.5  5.0  5.0  4.5  4.5  4.5  4.0  4.0

Source: Bank Indonesia

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