Indonesia's inflation edged up to 8.8%

Expect further policy tightening, warns analyst.

According to Bank of America Merrill Lynch, Indonesia's headline inflation edged higher to +8.8% in August, from +8.6% in July, slightly below expectations.

Here's more from BofAML:

On a month-on-month basis, inflation rose +1.1% in Aug, vs. +3.3% in July. Measures to boost supply of essential food items may have negated some inflationary pressures.

Core inflation increased more modestly to +4.5% in Aug (from +4.4%) from July. Pass-through from the fuel price hike to non-food and energy items has been limited so far.

"Double-digit" inflation likely by year-end

Inflation may peak at about +10%-10.5% in Dec or Jan (vs. Bank Indonesia's guidance of 9%-9.8% at year-end). The weak rupiah, which has declined some 12% against the US$ since May this year, will increase imported inflation.

A potential pass-through of about 15% from the currency will readily lift inflation to the double-digits by year-end. Past empirical studies find high pass-through for Indonesia.

We are also mindful of the risk from rising global oil prices and higher minimum wage.

BI hiked last week; expect further tightening

BI raised the main policy rate and FASBI by +50bps last Thurs to 7% and 5.25% respectively. The lending facility rate was also hiked by +25bps to 7%.

Given our higher inflation projections, we see another +50bps hike to the BI rate and FASBI, to 7.5% and 5.75% respectively.

Further monetary tightening is likely to curb inflation, stabilize the rupiah and reduce the current account deficit.

Reaching the people who run Asia's businesses is harder than it used to be.

Inboxes are crowded. Attention is short. The executives you most want to reach — the founders, CFOs, and operators who actually move budgets — are the hardest to find through the usual channels. If you're building a company, a category, or a reputation, you already know this.

We've spent twenty years building the room they read. Singapore Business Review is where senior decision makers in Singapore and across Southeast Asia come for business coverage they can't get elsewhere — in print, online, and in person at the summits and roundtables we host across seven markets.

If you have something these readers should know about — a point of view worth publishing, a product worth their attention, an event worth their time — we'd like to hear what you're trying to do.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia