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JAKARTA (TheInsiderStories) – Indonesia’s headline inflation increased slightly in December 2017 as prices remained under control during the year-end holiday season.

The Statistic Indonesia said the consumer price index (CPI) in December rose 0,71 per cent from November (Month to Month/MtM).

Given the December inflation figure, the full year inflation reached  3.61 per cent year to date (ytd). The inflation rate is below the government target of inflation for the whole year 4.3 percent.

The annual core inflation rate, which strips out government-controlled and volatile food prices, increased marginally to 2.95 per cent.

The rising demand for goods and services during Christmas celebration and ahead of New Year holidays was the main factor for December’s inflationary pressure.

Previously Bank Indonesia (BI) has forecast a headline inflation rate of 3.0 percent to 3.5 per cent by the end of the year and 2.5 per cent to 4.5 per cent in 2018.

Bank Indonesia has lowered its benchmark policy rate, BI 7-Days Repo Rate, so far this year to 4.25 per cent. The move was accompanied by plans to tweak credit rules in a bid to help stimulate commercial lenders’ loans and spur consumption.

The full year 2017 inflation rate has been below the government and most economists projections.

Most economists have also projected a relatively stagnant inflation in 2018. DBS economist Gundy Cahyadi projected Indonesia’s inflation rate to hit 4.0 per cent and 4.5 per cent in 2018 and 2019, respectively, up from its forecast of 3.9 per cent for 2017.

CPI inflation has averaged 3.8 per cent so far in second half of 2017, lower than the 4.3 per cent average in the second quarter. Food inflation has continued to weaken during the year. Inflation in the volatile food component of the CPI (18.9 per cent weighting) came in a record-low 0.8 per cent in October. This has pulled down the overall CPI, despite inflation staying circa 5 per cent in both transport/communications and housing/utilities components of the CPI.

DBS expects BI to start hiking rates again in the fourth quarter (Q4) 2018, bringing the policy rate back to 5 per cent by mid-2019. “Not only do we expect inflation to tick up, but anticipation of a stronger broad USD may also mean that higher domestic interest rates are necessary,” he noted.  (*)

Written by Elisa Valenta, email : elisa.valenta@theinsiderstories.com