Indonesia Macro Update - Inflation 03 Jun 2026
KBVS MACRO UPDATE
Wednesday, 3 June 2026
Double Supply Shocks Drive May Inflation Higher
Indonesia's headline inflation accelerated to 0.28% MoM or 3.08% YoY in May '26, approaching the upper bound of BI's 1.5–3.5% target range on a combination of volatile food supply shock and rupiah pass-through. The acceleration was driven by three concurrent forces: a late-month volatile food supply shock, pre-Idul Adha seasonal demand pickup, and ongoing pass-through from non-subsidized fuel and avtur price increases.
A notable development in May ’26 was the sharp increase in chili prices, particularly during the second half of the month. The combination of accelerated dry season onset, harvest transition in major producing belts, localized crop failure across key rice and horticultural, alongside rising agricultural input costs, created a supply gap that the distribution network was unable to absorb, transmitting directly into consumer prices at month-end.
The May '26 CPI outcome effectively closes the door on a near-term BI rate cut and raises the probability of a prolonged hold, with a tail risk of a rate adjustment later in '26F should external pressures intensify. We maintain our view that BI will hold the BI-Rate at 5.50% at the June '26 RDG (18–19 Jun '26), as the supply-driven nature of the shock does not warrant an immediate policy rate response. Looking ahead, the key risk to the inflation trajectory is whether the El Niño-driven dry season extends into Jun–Jul '26 as BMKG's seasonal outlook currently suggests, which would sustain volatile food pressure at elevated levels, particularly ahead of Idul Adha on approximately 7 Jun '26 which may add another demand-side impulse to horticultural prices in the June print.
Regards,
Fikri C Permana & Khairunnisa N Syahfiraputri - KBVS Research Team