Indonesia: Inflation falls to lowest level in over two years in July
Inflation dropped to 2.1% in July, down from June’s 2.5%. July’s result marked the lowest inflation rate since February 2022 and surprised markets on the downside. The fall was primarily due to falling price pressures for food, transportation, clothing and footwear, and recreation and entertainment.
That said, annual average inflation was unchanged at June’s 2.8% in July. Meanwhile, core inflation rose to 2.0% in July from June’s 1.9%.
Lastly, consumer prices dropped 0.18% in July over the previous month, a sharper drop than the 0.08% drop recorded in June. July’s result marked the weakest reading since August 2022.
Nomura analysts Euben Paracuelles and Nabila Amani commented on the inflation and monetary outlook:
“We still forecast average headline inflation of 2.9% y-o-y in 2024, down from 3.7% in 2023, with administered prices still likely to be held stable amid the political transition. However, taking into account the July outturn, downside risks are rising. […] [Bank Indonesia] is likely to continue to indicate that the process of policy normalization may begin this year, as the inflation outlook remains benign, but this is provisional on a supportive external backdrop.”