So far this year, Indonesian inflation has accumulated to 1.24 percent in the first six months of the year, which is a very low level of inflation by Indonesian standards. And, we are unlikely to see sudden changes in the second half of the year. Yes, the El Nino weather phenomenon is able to disrupt the supply of food commodities in the second half of the year.

However, we assume that the government is ready to open room for imports when food commodity shortages loom, especially considering we are getting closer to the February 2024 legislative and presidential elections. Typically, the political parties do not want to get unnecessary bad publicity ahead of these elections as they could miss out on votes. For example, if the cabinet under the leadership of PDI-P’s Joko Widodo would raise prices of subsidized fuels only a couple months before elections, then it could do damage to the election result of the PDI-P party.

And considering the government will do its best to curtail inflation in 2023 ahead of the elections, it is quite likely that inflation will only reach around 2.75 percent year-on-year (y/y) in 2023, which is an inflation level many countries would envy.

Indonesia’s annual headline inflation rate continued to ease in June 2023. BPS noted the rate now stands at 3.52 percent (y/y), down significantly from 4.0 percent (y/y) in May 2023, or 4.33 percent (y/y) in April 2023. Meanwhile, in July 2023 we expect to see another sharp decrease in Indonesian inflation due to last year’s high base. It also means that Indonesian inflation is comfortably within the central bank’s target range of 2.0 – 4.0 percent (y/y) for 2023.


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