Indonesia Macro Update - INF 01 Oct 2024
KBVS MACRO UPDATE
Tuesday, 1 October 2024
Deflation Continues for Five Consecutive Months
In Sep 2024, the headline CPI inflation rate recorded -0.12% MoM or 1.84% YoY (Cons: -0.03% MoM or 2.00% YoY, KBVS: -0.05% MoM or 2.00% YoY, Prev: -0.03% MoM or 2.12% YoY), indicating monthly deflation for the fifth consecutive month. The Volatile Foods group was the largest contributor to this deflation, dropping by -1.34% MoM, primarily driven by significant price declines in red chili peppers (-18.18% MoM) and cayenne peppers (-6.51% MoM).
Additionally, deflation occurred in the Administered Price component, registering -0.04% MoM in Sep ‘24. This was largely due to the Energy Component's deflation of -0.31% MoM, following the adjustment of non-subsidized fuel prices as of Sep 1, ‘24, driven by the simultaneous decline in global oil prices.
However, we also anticipate that the ongoing deflation for five consecutive months is accompanied by a decline in urban middle-class purchasing power. This is likely driven by an increasing wallet share allocated to components classified under core inflation, while deflation occurs in the volatile and administered components, which can be categorized as secondary and tertiary expenditures.
Looking ahead, we expect further deflation, supported by lower prices of non-subsidized fuel as of Oct 1, ‘24, and the resumption of India’s non-Basmati rice exports at a price of IDR 7,411 per kg, while the average price of lower quality rice in Indonesia stood at IDR 13,850 per kg as of Oct 1, ‘24. This deflationary moment provides headroom for BI to lower the interest rates along with the fed.
Regards,
Fikri C. Permana