Indonesia's inflation figure in December 2015 was higher than expected at 0.96 percent month-on-month (m/m). The monthly inflation rate was high due to rising prices of food and transportation caused by the Christmas and New Year celebrations. Nevertheless, Indonesia's annual inflation rate fell to the lowest level since 2010 as the impact of the November 2014 subsidized fuel price hike vanished from the annual inflation figure, hence inflation realization falling well below the government target (5 percent) and the central bank's target range (3 - 5 percent) in 2015.

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Indonesian inflation may reach 2.9 percent year-on-year (y/y) only in full-year 2015, the lowest level since 2009 when inflation in Southeast Asia's largest economy was recorded at 2.78 percent (y/y). In recent years Indonesia's inflation has been volatile with peaks correlating with administered price adjustments (primarily fuel and electricity price hikes as the government is keen on limiting spending on subsidies). Another characteristic of Indonesia is that inflation is generally high (compared to advanced economies), which is in line with the higher economic growth pace (than that of advanced economies).

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Indonesia's Statistics Agency (BPS) announced today that Indonesian inflation was recorded at 0.21 percent (month-to-month) in November 2015. On an annual basis, inflation eased markedly to 4.89 percent in November, from 6.25 percent in the preceding month, as the impact of the subsidized fuel price hike in November 2014 vanished from the annual inflation rate. In November 2014 inflation had accelerated 1.50 percent (m/m). Next month, Indonesia's annual inflation will most likely ease even more sharply.

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The central bank of Indonesia (Bank Indonesia) expects headline inflation to reach 2.79 percent (y/y) in full-year 2015, below the central bank's target range of between 3 and 5 percent. Inflation has been low in Indonesia this year, accumulating to 2.16 percent in the first ten months of 2015, and Bank Indonesia estimates that the pace of inflation will remain controlled in the last two months of 2015.

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Statistics Indonesia (BPS) said the government's plan to cut electricity subsidies for 450 VA and 900 VA households (per 1 January 2016) is likely to lead to a higher inflation and poverty rate. Cutting the electricity subsidy bill is part of government efforts to reduce costly energy subsidies and redirect these funds to productive investments (for example infrastructure development or social welfare programs). Moreover, more than 20 million Indonesians are enjoying subsidized electricity, while they are not classified as (near) poor.

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In line with estimates, Indonesia posted 0.08 percent (m/m) deflation in October 2015. Deflation was primarily caused by lower food prices in Southeast Asia's largest economy. Annual inflation eased to 6.25 percent (y/y) and is expected to ease more markedly in the last two months of the year as the impact of last year November's subsidized fuel price hike will be swept away from inflation figures. Indonesia's core inflation - which excludes volatile food and administered prices - was 5.02 percent (y/y) in October.

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The central bank of Indonesia (Bank Indonesia) expects to see a sharp slowdown in inflation in the last couple of months of 2015. Currently, the annual inflation pace stands at 6.83 percent (y/y). However, by the year-end Bank Indonesia estimates the consumer price index to have eased to 3.6 percent (y/y), which would be in the lower range of its 2015 inflation target (3-5 percent y/y). This update was given by Bank Indonesia Governor Agus Martowardojo when meeting the Financial Sector Stability Coordination Forum (FKSSK).

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Indonesia experienced deflation, with consumer prices falling by 0.05 percent (month-on-month), in September 2015 on the back of lower food and transportation prices. Examples of lower food prices include chicken meat, eggs, chili peppers, onions and cooking oil. Regarding lower transportation costs it was particularly lower air transport tariffs that contributed to deflation. On an annual basis, Indonesian inflation eased to 6.83 percent in September, down from 7.18 (y/y) in the preceding month, and below analysts' estimates at 7.0 (y/y).

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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.

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Most analysts expect that Indonesian inflation will accelerate to around 7.43 percent (year-on-year) in August 2015 primarily due to imported inflation. As the Indonesian rupiah has been depreciating against the US dollar over the past couple of weeks while the central government recently raised import duties for a wide range of consumer products, inflationary pressures are estimated to rise.

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The inflation rate of Indonesia rose slightly in November 2013 (month-to-month) and confirms estimations that inflation in Southeast Asia's largest economy is under control after having accelerated sharply due to the introduction of higher subsidized fuel prices June 2013. In recent months, inflation moved sideways and is expected to ease considerably in the first quarter of 2014. Indonesia's consumer price index rose 0.12 percent in November due to rising electricity, processed foods and health care costs.

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