Radhika Rao, an economist at DBS Group Research, said Indonesia’s inflation accelerated in May due to higher food and energy costs, but remained within Bank Indonesia’s target range. She highlights weather risks, rupee weakness and declining trade surplus as key concerns. The report highlights that in the absence of fuel price adjustment, higher global prices could put pressure on trade and current accounts, and expects further domestic rate tightening by the BI this year.
Inflation increases due to decreasing trade surplus
“Despite stable pump prices, Indonesia’s May inflation rose to 3.1% from 2.4% due to higher food and energy pressures in the month.”
“Put differently, price adjustments in the market-driven i.e. volatile segment (cooking oil, chilli, etc.) rose sharply to 6.2% from 3.4% in the previous month, driven by gains in the administrative and energy sub-indices.”
“Core inflation is still within BI’s target of 1.5-3.5%, although close to the upper end, which is likely to be breached if the West Asia conflict drags on.”
“Concurrently, April’s trade surplus narrowed to $89 million from $3.3 billion in March, the smallest in nearly six years, following increases in imports of crude oil (67.5%) and refined fuels (88%).
“Without fuel price adjustments to offset demand slowdown, higher global prices and a weaker rupee are likely to impact the trade balance and, consequently, the current account math.”
(This article was created with the help of an artificial intelligence tool and reviewed by an editor.)
