Indonesia Macro Update - INF 01 Nov 2023
KBVS MACRO UPDATE
Wednesday, 1 November 2023
The El Niño and Rupiah Depreciation Have Begun to Drive Oct ’23 Inflation
The increase in rice and chili prices, adjustments in non-subsidized fuel prices as well as air transport tariff adjustments have been the primary drivers of inflation in Oct '23, pushing it to 0.17% MoM or 2.56% YoY (Cons: 2.60% YoY, KBVS: 2.59% YoY, Prev: 2.28% YoY). As of today, Indonesia's Nikkei Manufacturing PMI in Oct '23 remains within the expansionary zone at 51.5 (Prev: 52.3).
Looking ahead, we anticipate that the increase in prices of volatile foods, particularly rice, chili peppers, and red peppers, is primarily due to the risk of El Niño, which is expected to persist until February '24. Furthermore, there is a risk of core inflation pressure, especially in rental prices, gold jewelry, and imported goods, driven by an increase in the cost of funds following the rise in the Bi7DRR on last RDG BI (19 Oct'23), and the ongoing trend of Rupiah depreciation. These factors have the potential to lead to an increase in inflation in the Nov and Dec '23. This outlook aligns with BPS's expectations of a -10.92% YoY decrease in national rice production during 4Q23 compared to the same period in the previous year. However, we anticipate that the decline in prices of livestock and fisheries commodities may act as a mitigating factor to offset the rise in other commodity prices. As a result, we project that year-end 2023 inflation will likely hovers around 2.72% YoY.
Regards,
Fikri C Permana - KBVS Research Team