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Inflation eases but rate cut deemed unlikely for now
Indonesia’s consumer price index (CPI) growth has been steadily within acceptable boundaries for almost a year, yet Bank Indonesia (BI) hiked its key interest rate twice during that time, and analysts believe the central bank will remain cautious despite inflation being under control.
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People queue to buy daily necessities at fixed prices at a market in Surabaya on March 12, 2024, as the government intervened to keep food supplies and prices stable. (AFP/Juni Kriswanto)
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ndonesia’s consumer price index (CPI) growth has been steadily within acceptable boundaries for almost a year, yet Bank Indonesia (BI) hiked its key interest rate twice during that time, and analysts believe the central bank will remain cautious despite safe inflation readings.
Interim Statistics Indonesia (BPS) head Amalia Adininggar Widyasanti announced at a press briefing on Thursday that headline inflation, which measures the year-on-year (yoy) increase in consumer prices, declined marginally to 3 percent in April from 3.05 percent in the preceding month.
In monthly terms, however, CPI growth eased significantly, as consumer prices in April were only 0.25 percent higher than in March, marking a slowdown from a month-to-month (mtm) increase of 0.52 logged in March.
Amalia attributed that slowdown to reduced price pressure in staple food products like “red chili, rice and eggs”.
Inflation has been well maintained within BI’s target range for almost a year now, but the central bank nonetheless decided to increase its benchmark interest rate twice in that period, most recently with a 25-basis-point (bps) increase on April 24, lifting the BI Rate to 6.25 percent.
BI’s inflation target range for 2023 was 2 to 4 percent, which was ultimately attained at the year’s close with 2.61 percent. The central bank then set a more ambitious target of 2.5 plus/minus 1 percent for this year, and so far, CPI growth has stayed well clear of the upper limit.
After a prolonged period of high inflation in Indonesia and much of the world, domestic inflation finally came back down to BI’s target range in May 2023 as CPI growth touched 4 percent yoy.
