Indonesia Macro Update - Inflation 1 Dec 2022

Consumer Price Inflation (CPI or headline) came lower than expected in Nov ’22, only reached 0.09% (mtm) or 5.42% (yoy). This shows the dissipating risk for potential secondary inflationary effect from the subsidized fuel hike in last Sep ’22 This lower inflationary trend, followed by an increase in the Farmers Exchange Rate (+0.50%mom) and coupled with farm laborers' as well as construction workers’ nominal wages and construction workers' nominal wages (+0.25% mom and +0.18% mom, respectively), will encourage an increase in people's purchasing power in the remainder of 2022 and will boost the contribution of domestic household consumption expenditure in 4Q22 (vs. 51.91% in 3Q22). We also view that the decline in consumer prices is also driven by the decline in producer price inflation (WPI) which fell in two consecutive months (Oct '22: 5.80%; Nov ’22: 5.74%) after reaching its peak on last Sep ‘22 (6.04%, yoy). The stable global commodity prices and reduced domestic and global trade barriers are several reasons behind the declining trend of WPI, as indicated by the decline in the global Baltic Dry Index and Indonesia's WPI Index. As a results, we expect further decrease in Dec ’22 inflation figure following the pass-through effect of declining producer prices growth in recent months. Apart from that, the decreasing trend of inflation (both CPI and WPI) as seen in Nov ‘22 has made Indonesia's real yield to be remain attractive at 194.4bps (Vs. -372.00bps in the US) which will encourage capital inflow to both bonds (SBN) and equity market (JCI). However, the possibility of an increase on the demand side amid the Christmas-New Year seasonal momentum might push inflation in the coming December, which will largely be addressed by the ample stocks of food as well as the improvement in distribution sides that will keep inflation at bay. In addition, the trend of appreciation in the Rupiah, which we expect to occur in December, will keep the risk of imported inflation abate.

Unduh