Indonesia's food prices hiked by a whopping 12.9%

It drove inflation to a 22-month high.

According to DBS, in Indonesia, the food component is the main driver of inflation. Food prices have risen by 7.6% since the beginning of the year and in YoY terms, the figure has surged to 12.9%.

With food prices (including processed food and tobacco) taking up a hefty 36% of the CPI basket, this has single-handedly pulled headline inflation to a 22-month high.

While bad weather in January has contributed to food price pressures, it is the persistent price uptrend in selected spices that that has kept the food price index rising.

Here's more from DBS:

At this point, there has not been spillover into the other components of CPI. However, with a weak rupiah and uncertainties about the subsidized fuel policy, inflation expectations risk becoming unhinged.

Going forward, the government may tweak import policies to ensure sufficient supply of spices to normalize food prices.

Some signaling by the central bank (BI) is probably needed to anchor inflation expectations and these can come in the form of FASBI deposit rate hikes.

There are considerable upside risks to our 5.3% inflation forecast for the year.

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