Indonesia Macro Update 02 May 2023

In-line with our expectation, CPI inflation in April '23 decreased to 4.33% YoY (Cons: 4.39% YoY, KBVS: 4.50% YoY, Prev: 4.97% YoY). This was accompanied by a decrease in core inflation to 2.83% YoY (Cons: 2.89% YoY, KBVS: 2.90% YoY, Prev: 2.94% YoY). Based on expenditure groups, all groups experienced inflation, except for the information, communication, and financial services group, which experienced deflation of 0.02% (MoM) or 0.25% (YoY). We believe that this condition was also driven by the decrease in bank funding costs in Apr '23, triggered by a decrease in 3M, 6M, and 12M JIBOR tenors by 0.58bps, 1.60bps, and 1.42bps compared to the previous month. However, the increase in food prices – particularly rice, chicken meat, chicken eggs, fresh fish, tomatoes, live chicken, garlic, oranges, papayas, kretek filtered cigarettes, white cigarettes, air transportation tariffs, intercity transportation tariffs, train fares, and gold jewelry – was offset by a decrease in bird's eye chili and red chili prices, which helped to maintain inflation stability during the Ramadhan and Eid al-Fitr cycles. Meanwhile, the wholesale price index (WPI) also decreased to 0.13% MoM or 4.56% YoY (Prev: 0.27% MoM or 5.44% YoY). This was driven by a 0.21% MoM deflation in the agricultural sector, although the mining & quarrying and industrial sectors experienced 0.44% MoM and 0.20% MoM inflation, respectively. On the other hand, out of 37 component commodities of the building materials group, 7 of them experienced a monthly price decline (including diesel fuel -1.25% MoM and rebar -0.32% MoM), 4 remained stable, while the rest continued to experience price increases. Furthermore, we expect the trend of decreasing inflation to continue, and we anticipate our target CPI inflation to be at 3.2% - 3.6% (yoy) by the end of 2023, despite the challenge of El Nino which is expected to happen around Aug '23. We hope that this will also be supported by the international trade price index (-0.79% mom in Apr '23) – especially the decrease in energy prices – which is expected to continue due to the projected increase in global temperature by 1.08°C to 1.32°C in 2023. Therefore, we believe that this will significantly reduce the risk of future inflation and we expect it to encourage BI to lower the BI7DRRR in 3Q23. In addition, we expect this condition to stimulate better credit demand in the second half of 2023, as the cost of bank funds begins to decline, and subsequently have a positive impact on economic growth, which we hope will be between 5.0% yoy and 5.3% yoy at the end of 2023.

Unduh