Indonesia Inflation Seen Returning to Goal Faster Than Forecast

Claire Jiao and Grace Sihombing
·2 min read

(Bloomberg) -- Indonesia’s inflation is poised to return within the central bank’s target as early as this month, in what economists see as a positive surprise for policymakers who had seen that outcome as possible only by August.

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Headline inflation will likely hit the 2%-4% range in May or June, according to economists’ projections after the release of April consumer price data on Tuesday. That will give Bank Indonesia the room to keep holding the key rate steady at 5.75%, or even consider altering course to a cut, if needed.

Consumer prices rose 4.33% last month, its slowest pace in nearly a year, as an ample harvest offset the seasonal uptick in prices driven by Eid al-Fitr celebrations. Volatile inflation eased to a 13-month low, thanks to food security measures like distributing chili seeds, funding rice drying machines and bazaars for in-demand staples.

Here’s what economists say:

Brian Tan, Barclays Plc

  • Headline inflation is on track to return to the top end of BI’s 2%-4% goal in May

  • With the core gauge also likely to stay benign, the central bank may “turn opportunistic” and cut its policy rate to support the economy after the Federal Reserve’s hiking cycle is over

Faisal Rachman, PT Bank Mandiri

  • Inflation should reach BI’s target band by June

  • Food costs should be manageable thanks to government programs to boost food supply and distribution, as well as declining global commodity prices

Miguel Chanco, Pantheon Macroeconomics Ltd.

  • Headline CPI will likely ease to 3.8% in June, as softening demand amplifies disinflationary pressures

Krystal Tan, Australia & New Zealand Banking Group

  • Inflation could return to target by July, barring new supply shocks

  • Demand is steady rather than faltering and core inflation is unlikely to drop much further

Nicholas Mapa, ING Groep NV

  • Bank Indonesia could consider a pivot by the third quarter given a well-behaved currency and within-target inflation

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