Indonesia: Inflation rebounded further in December – UOB

Enrico Tanuwidjaja, Economist at UOB Group, and Haris Handy, reviewed the latest inflation figures in Indonesia.

Key Quotes

“Indonesia’s annual inflation rate accelerated by 1.68% y/y in December vis-à-vis 1.59% in the previous month. This also marked the highest annual inflation since June, albeit remains below the central bank’s target range of 2.0% - 4.0%. On a month-to-month basis, inflation rose by 0.45%, the highest monthly inflation in a year.”

“The latest figure brings the 2020 average inflation rate to 2.03%, which is in line with our expectation. Overall, both food and gold prices helped cushion headline inflation from falling too deep amidst a year like no other due to the virus outbreak in 2020. Going forward, we expect the headline inflation to remain under control and gradually recover, pass through the lower-end of the government's 2021 inflation target (2.0% - 4.0%). For 2021, we forecast inflation to average 2.3% on the back of recovering demand (especially later on 2H21 given the optimism from the vaccine, which will help economic activities to return to near pre-pandemic level), accommodative monetary policy, and the continuation of fiscal stimulus disbursement. Nevertheless, downside risks remain due to uncertainty surrounding the pandemic, (i.e., persistent high infection rate due to poor containment measures, slow vaccine rollout, the virus mutation, etc.) which, in return, may hit the consumers’ confidence.”