Indonesia: September 2018 CPI inflation

By Lim Yee Ping, Economist, CIMB Research and Economics and Michelle Chia, Economist, CIMB Research and Economic


September 2018 CPI inflation

  • Headline and core inflation decelerated in September. The headline inflation of 2.9% yoy was at its weakest pace since August 2016.
  • The pass-through effect of a weaker rupiah and higher import tax on overall consumer prices has been relatively benign.
  • With actual inflation having undershot our expectation for five consecutive months, we lower our 2018 headline inflation forecast to 3.2% yoy.


Headline and core inflation eased in September
Both headline and core inflation decelerated despite a weaker rupiah and import tax increases on a range of consumer goods in September. The headline inflation of 2.9% yoy (CGS-CIMB forecast: +3.2% yoy; Bloomberg consensus: +3.1% yoy; August: +3.2% yoy) was the slowest in more than two years, whereas core inflation eased slightly to 2.8% yoy (+2.9% yoy in August).

Further normalisation in food prices post-festive season
On a month-on-month basis, the consumer price index (CPI) contracted for the second consecutive month in September (-0.2% mom vs. -0.1% mom in August), led primarily by further easing in food prices (-1.6% mom vs. -1.1% mom in August). All but two food categories recorded monthly deflation in September, with the steepest price cuts for meat, eggs and spices. Meanwhile, airfares continued to ease after the Asian Games (18 August – 2 September), resulting in declining transport inflation (-0.1% mom vs. -0.2% mom in August) which offset price gains in transport equipment and support (+0.3% mom vs. +0.4% mom in August).

Waning pressure on education costs
Price pressures in education (+0.7% mom in September vs. +1.6% mom in August) as well as courses & training (+0.5% mom vs. +0.8% mom in August) started to wane as the school term entered into the third month, helping to offset the rebound in clothing (+0.3% mom in September vs. -0.1% mom in August) and healthcare costs (+0.4% mom vs. +0.2% mom in August). As a result, the monthly increase in core CPI, which excludes volatile food and administered price items, remained steady at 0.3% mom (+0.3% mom in August).

2018 inflation forecast revised lower to 3.2% yoy
Non-O&G import wholesale price inflation (WPI) quickened to an 18-month high of 4.2% yoy in September, most likely driven by higher import taxes, in our view. Although the monthly PMI survey by Nikkei/Markit indicated that manufacturers have been passing on higher costs to customers, primarily due to weaker rupiah relative to US$, the impact on headline inflation numbers is benign. Moreover, fuel prices are still capped by the government despite higher global oil prices, with higher costs being shared by the government and Pertamina. The government issued a regulation in August to raise per litre subsidy for diesel from Rp500 to Rp2,000, which will apply retroactively from 1 Jan 2018. As the headline inflation has undershot our expectations for five months, we fine-tune our 2018 inflation forecast from 3.4% yoy to 3.2% yoy.






Originally published by CIMB Research and Economics on 01 October 2018.

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