Ramadan inflation, but without the core

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 The consumer price index (CPI) rose 4.97% YoY (0.18% MoM) in March 2023. The main driver of inflation last month remains food prices, which continued to show significant increases ahead of the Ramadan celebrations. Despite deflation in the prices of spices such as bird’s eye chilies, the decline in prices for these food commodities was not enough to offset increases in prices for other food items, especially rice.

 Sharp increases in the prices of rice are likely related to the reported crop failures in several regions due to heavy rainfalls since late last year, which have caused lower rice yields during the harvest season. While the government’s recent rice imports (as much as 500 thousand tons) could help stabilize rice prices in the near-term, our main concern in the medium-term is that the on-going rice production issues would result in stubbornly high producer prices, which could mean that we might be dependent on imports beyond the Ramadan and Lebaran season.

 While food prices have continued to rise, core inflation is still on its downward trend, slowing to 2.94% YoY in March (compared to 3.09% YoY in the month before). This decline could be attributed to a number of factors, one of which has to do with declining purchasing power.

Indeed, our big data consumer spending and business revenue indices have been showing a decline throughout March, although the “high-base” after the end of Omicron last year might also be partially to blame. Another factor for slowing core inflation could also be slowing monetary inflation, amid slowing credit growth over the past few months.

 In the short-term, prices for items that fall under the “Lebaran staples”, which includes foodstuffs, transportation, and apparel, may experience further increases. Prices for airline tickets, for instance, have increased quite sharply ahead of the “Mudik” season, an annual mass homebound travel around the time of Lebaran. Meanwhile, the increase in fuel prices is likely related to the rise in Pertamax prices in the beginning of March. Although again, the

Executive Summary

 Indonesia’s inflation rose to 4.97% YoY (0.18% MoM) in March 2023, largely attributed to increases in prices for foodstuffs and transportation.

 The core inflation has slowed down to 2.94% which may be an indication of declining purchasing power as well as slowing credit growth.

 Since inflation is expected to slow down towards the year-end and market expectations are back to the Fed pivot, BI has greater flexibility to maintain its interest rates in the short-term.

CPI:

Ramadan inflation, but without the core

03 April 2023

Barra Kukuh Mamia Senior Economist Keely Julia Hasim

Economist/Analyst

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seasonal increase in prices might not be as significant as last year, as the effects of households’ end-of-pandemic-restrictions revenge spending begin to wear off.

 While food prices remain in the wildcard, we expect the national inflation rate to peak and then slowdown by the end of the year. There also seems to be a silver lining from the banking crisis in the US, in that the market now generally expects for the Fed to pivot sooner than previously thought, which has led to foreign inflows back into the domestic bond market. The current economic climate then, is giving BI room to maintain its interest rates in the near- term to facilitate domestic economic growth.

Source: BPS, calculation by BCA Economic Research

Panel 1. March inflation is mainly driven by foodstuffs and transportation, while core inflation continue to decline

-1 0 1 2 3 4 5 6 7

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Dec-22 Mar-23

Core Admin Prices

Volatile Food CPI Inflation

% YoY

4.97 0.96 2.08

1.93

-1 0 1 2 3 4 5 6 7

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 May-21 Aug-21 Nov-21 Feb-22 Jun-22 Sep-22 Dec-22 Mar-23

Foodstuffs Housing & Utilities

Transportation Others

CPI Inflation

4.97 1.19

1.70 0.56 1.51

% YoY

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Source: BI, OJK, BCA big data, calculation by BCA Economic research

Source: Ministry of Trade and BPS

Panel 2. Slowing core inflation likely linked to slowing credit growth

% YoY % YoY

Panel 3. Lower rice yields have led to sharp increases in prices for that staple food item

Producer prices

Retail prices

% YoY % YoY

60 80 100 120 140 160 180 200

-20 -10 0 10 20 30 40 50

Jan-17 Jul-17 Jan-18 Jun-18 Dec-18 May-19 Nov-19 Apr-20 Oct-20 Apr-21 Sep-21 Mar-22 Aug-22 Feb-23

% YoY index (2017 = 100)

 Base money growth

 Money multiplier

 Implied money velocity

(based on big data) 24.2

-0

-20 -15 -10 -5 0 5 10 15

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Jan-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23

% YoY % YoY

Core inflation, detrended

Loan growth, detrended

0.1 0.9

-9.4%

-2.6%

-0.1%

0.7%

-4.3%

1.3%

-7.6%

6.3%

17.4%

9.4%

-9.9%

-3.7%

-0.6%

0.0%

8.6%

1.0%

-12.3%

2.4%

2.9%

2.3%

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25%

Chicken Chicken egg Beef Sugar Shallot Cooking oil Bird's eye chili Rice Garlic Red chili

YTD

Change in prices YTD:

 Feb 2023

 Mar 2023

-5 0 5 10 15

Jan-20 May-20 Aug-20 Dec-20 Mar-21 Jun-21 Oct-21 Jan-22 May-22 Aug-22 Nov-22 Mar-23

13.2 13.6

RICE

Producer prices

Retail prices

% YoY

-40 -20 0 20 40 60 80

Jan-20 May-20 Aug-20 Dec-20 Mar-21 Jun-21 Oct-21 Jan-22 May-22 Aug-22 Nov-22 Mar-23

1.02 -18.4

COOKING OIL

Producer prices

Retail prices

% YoY

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Selected Macroeconomic Indicator

Source: Bloomberg, BI, BPS Notes:

^Data for January 2022

*Data from earlier period

**For changes in currency: Black indicates appreciation against USD, Red otherwise

***For PMI, >50 indicates economic expansion, <50 otherwise Key Policy Rates Rate (%) Last

Change

Real Rate (%)

Trade &

Commodities 31-Mar -1 mth Chg (%)

US 5.00 Mar-23 -1.00 Baltic Dry Index 1,389.0 990.0 40.3

UK 4.25 Mar-23 -6.15 S&P GSCI Index 574.0 581.9 -1.3

EU 3.50 Mar-23 -3.40 Oil (Brent, $/brl) 79.8 83.9 -4.9

Japan -0.10 Jan-16 -3.40 Coal ($/MT) 193.0 194.1 -0.6

China (lending) 4.35 Apr-23 3.35 Gas ($/MMBtu) 2.10 2.50 -16.0

Korea 3.50 Feb-23 -1.30 Gold ($/oz.) 1,969.3 1,826.9 7.8

India 6.50 Feb-23 0.06 Copper ($/MT) 9,003.5 8,951.0 0.6

Indonesia 5.75 Mar-23 0.78 Nickel ($/MT) 23,651.0 24,591.0 -3.8

CPO ($/MT) 938.7 926.8 1.3

Rubber ($/kg) 1.34 1.36 -1.5

SPN (1M) 4.36 4.40 -3.6

SUN (10Y) 6.77 6.88 -10.6

INDONIA (O/N, Rp) 5.62 5.62 -0.1 Export ($ bn) 21.40 22.32 -4.15

JIBOR 1M (Rp) 6.40 6.40 0.2 Import ($ bn) 15.92 18.44 -13.68

Trade bal. ($ bn) 5.48 3.88 41.15

Lending (WC) 8.75 8.60 14.94

Deposit 1M 4.00 3.95 5.05

Savings 0.67 0.67 0.03

Currency/USD 31-Mar -1 mth Chg (%) Consumer confidence

index (CCI) 122.4 123.0 119.9

UK Pound 0.811 0.832 2.62

Euro 0.923 0.946 2.49

Japanese Yen 132.9 136.2 2.49

Chinese RMB 6.874 6.936 0.90

Indonesia Rupiah 14,995 15,250 1.70 Capital Mkt 31-Mar -1 mth Chg (%)

JCI 6,805.3 6,843.2 -0.55 USA N/A N/A N/A

DJIA 33,274.2 32,656.7 1.89 Eurozone 47.3 48.5 -120

FTSE 7,631.7 7,876.3 -3.10 Japan 49.2 47.7 150

Nikkei 225 28,041.5 27,445.6 2.17 China 50.0 51.6 -160

Hang Seng 20,400.1 19,785.9 3.10 Korea 47.6 48.5 -90

Indonesia 51.9 51.2 70

Stock 2,730.0 2,700.6 29.43

Govt. Bond 804.3 811.9 -7.57

Corp. Bond 12.4 12.4 -0.06

7.4 11.9 9.0

Chg (%)

Jan Dec

Feb

140.3 139.4 0.64

Foreign portfolio

ownership (Rp Tn) Feb Jan Chg (Rp Tn)

External Sector

Prompt Indicators

Car sales (%YoY)

Manufacturing PMI Motorcycle sales (%YoY)

Central bank reserves ($ bn)*

Chg (bps) Feb

Mar Money Mkt Rates 31-Mar -1 mth Chg

(bps)

Bank Rates (Rp) Jan Dec Chg

(bps)

56.3 38.6 24.6

Feb Jan

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Indonesia – Economic Indicators Projection

*Estimated number

** Estimation of Rupiah’s fundamental exchange rate

Economic, Banking & Industry Research Team David E.Sumual

Chief Economist

[email protected] +6221 2358 8000 Ext:1051352

Agus Salim Hardjodinoto

Head of Industry and Regional Research [email protected]

+6221 2358 8000 Ext: 1005314

Barra Kukuh Mamia Senior Economist [email protected] +6221 2358 8000 Ext: 1053819 Victor George Petrus Matindas

Senior Economist

[email protected] +6221 2358 8000 Ext: 1058408

Gabriella Yolivia Industry Analyst

Lazuardin Thariq Hamzah Economist / Analyst

[email protected] +6221 2358 8000 Ext: 1071724 Keely Julia Hasim

Economist / Analyst [email protected]

+6221 2358 8000 Ext: 1071535

Elbert Timothy Lasiman Economist / Analyst [email protected] +6221 2358 8000 Ext: 1074310

Thierris Nora Kusuma Economist / Analyst [email protected] +6221 2358 8000 Ext: 1071930 Arief Darmawan

Research Assistant

Firman Yosep Tember Research Assistant [email protected] +6221 2358 8000 Ext: 20378

2018 2019 2020 2021 2022 2023E

Gross Domestic Product (% YoY) GDP per Capita (US$)

Consumer Price Index Inflation (% YoY) BI 7 day Repo Rate (%)

USD/IDR Exchange Rate (end of year)**

Trade Balance (US$ billion) Current Account Balance (% GDP)

5.2 3927

3.1 6.00 14,390

-8.5 -3.0

5.0 4175

2.7 5.00 13,866

-3.2 -2.7

-2.1 3912

1.7 3.75 14,050

21.7 -0.4

3.7 4350

1.9 3.50 14,262

35.3 0.3

5.3 4784

5.5 5.50 15,568

54.5 1.0

4.7 5011

4.3 5.75 15,647

19.8 -1.2

PT Bank Central Asia Tbk

Economic, Banking & Industry Research of BCA Group 20^th Grand Indonesia, Menara BCA

Jl. M.H Thamrin No. 1, Jakarta 10310, Indonesia Ph : (62-21) 2358-8000 Fax : (62-21) 2358-8343

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