Inflation is expected to have remained high in Indonesia in June 2017 amid the Ramadan and Idul Fitri celebrations, a period when increased consumption (especially consumption of food products) always triggers inflationary pressures in Southeast Asia's largest economy. Monthly inflation is estimated to reach around 0.50 percent in June. On Monday (03/07) Indonesia's Statistics Agency (BPS) will release the nation's official inflation figures.
If the estimate is more-or-less accurate then Indonesia's annual inflation will ease modestly to about 4.20 percent year-on-year (y/y) in June 2017. Although higher than the preceding two years, this figure is still well within the central bank's (rather wide) target rate of 3 - 5 percent (y/y).
The main reason why Indonesia's inflation has risen this year is the government's efforts to reduce electricity subsidies (it has raised electricity for specific households).
During the Islamic fasting month (Ramadan) and the week-long Idul Fitri celebrations (that mark the end of the Ramadan month) food prices rose steepest compared to other products and services. However, prices of clothing and transportation services also showed marked increases.
Considering Indonesian inflation remains stubbornly 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) is likely to 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.
Inflation in Indonesia:
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
(annual % change)
(annual % change)
Source: Bank Indonesia