Indonesia Macro Update - Inflation 01 Mar 2023

In line with our estimation, Feb '23 headline (consumer price index - umer price index -CPI) inflation rose to 5.47% yoy (Cons’: 5.44% CPI) inflation rose to 5.47% yoy (Cons’: 5.44% yoy, KBVS: 5.68% yoy), up from 5.28% yoy in Jan '23. This was attributed to heavy rainfall and floodin . g in three major agricultural provinces – West Java, Central Java and East Java – causing a supply shock and a subsequent rise in the prices of several food items. For example, red chilli saw an increase of 12.17% (mom), cayenne pepper 10.08% (mom), garlic 7.24% (mom) and rice 2.02% (mom) – see Table 2, page 2. Additionally, crop failure was not only reported in Java, but also in other regions such as Kabupaten Kotabaru – the highest regional inflation at 7.88% (yoy) – this was further exacerbated by crop failure in supporting regions, such as Kabupaten Tabalong. Moreover, the increase in non-subsidy fuel prices on 1 and 6 Feb ’23 seemed to also influence the increase in household fuel prices by 0.22% (mom), while the decrease in global energy prices, which had an impact on the decrease in avtur prices, decreased air transport tariffs in the same period. The increase in CPI inflation was also driven by an increase in the wholesale price index (WPI) from 5.59% (yoy) in .59% (yoy) in Jan '23 to 5.93% (yoy) in Feb '23. Price increases Jan '23 to 5.93% (yoy) in Feb '23. were derived from commodities such as garlic, rice, kretek cigarettes with filters, and bottled drinking water. On the other hand, the decline in global commodity prices - reflected by the Bloomberg Commodity Index, which fell 4.19% (mom) - coupled with a depreciation of the RupiahUSD exchange rate of 1.90% (mom) in Feb '23 drove a decrease in international trade prices, both exports -0.29% (mom) and imports -1.13% (mom). The increase in Feb '23 inflation has caused Indonesia's real yield (SUN10Yr - sia's real yield (SUN10Yr -inflation spread) shrinked to 141.0 inflation spread) shrinked to 141.0 bps, from 151.2 bps in the previous month. Moreover bps, from 151.2 bps in the previous month. , with higher expected terminal Fed Rates, reaching 5.50% on 28 Feb '23, compared to 5.25% on 2 Feb '23, there has been an outflow of IDR6.07 tn from SBN, compared to the inflow of IDR49.7 tn during Jan '23. Therefore, we Therefore, we still see the possibility Therefore, we still see the possibility of short still see the possibility of short of short-term outflows from SBN, due to the term outflows from SBN, due to the volatility caused by more hawkish expectation in Fed Rates and BI7DRRR. d Rates and BI7DRRR. We expect Mar '23 inflation to still be affected by the weather's impact on the supply of food commodities and Ramadhan (scheduled to start in 3rd week of Mar). However, we anticipate that inflation can be supported by the stability of the Rupiah and the stability of intern stability of the Rupiah and the stability of international trade prices (both export ational trade prices (both exports and imports). s and imports).

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