Indonesian Macro Update 04 Sep 2023
KBVS MACRO UPDATE
Monday, 4 September 2023
MoM Deflation In Aug '23 Driven By Volatile Food, While Rupiah Remain Stable
As expected, Indonesia recorded a monthly deflation in Aug ’23 with CPI slightly down by -0.02% mom (Cons: +0.05% mom; KBVS: -0.11% mom; Prev: +0.21% mom), while on an annual basis, the inflation rose by 3.27% yoy (Cons: 3.34% yoy; KBVS: 3.18% yoy; Prev: 3.08% yoy). Meanwhile, the Wholesale Price Index (IHPB) experienced inflation of +0.04% mom or 3.72% yoy.
Furthermore, the Rupiah depreciation coupled with the global energy price hike, contributed to international trade inflation in Aug '23 at 0.25% mom. This raises concerns about potential imported inflation, particularly through domestic energy price inflation. Therefore, the injection of liquidity through the effective implementation of Natural Resource Export Earnings (DHE SDA) and the issuance of Bank Indonesia Rupiah Securities (SRBI) instruments is not only seen as essential to maintaining Rupiah stability but also to curb imported inflation. Furthermore, the cumulative inflation impact of the subsidized fuel price hike last year is expected to be neutralized. However, with the ongoing El Niño and the potential crop failures, coupled with the non-subsidized fuel price increase on 1 Sep '23, there is a possibility of rising core inflation in Sep' 23, albeit still within the Bank Indonesia's target range. Thus, we believe the room for a reduction in the BI7DRR interest rate remains open until the end of 2023.
KBVS Research Team