Inflation to creep up to 5.2% in Indonesia

Blame it on food price hikes starting in mid-Q3 due to Ramadan.

According to Nomura's Asia Special Report, unlike regional peers, CPI inflation in Indonesia is already creeping up. In our baseline forecast, we expect further increases in headline inflation, driven by food price increases starting in mid-Q3 due to Ramadan, current account deficits pressuring IDR and core inflation remaining elevated.

Here's more from Nomura:

We forecast CPI to end-2012 at 5.2% versus Bank Indonesia‟s (BI) target of 3.5-5.5%.

Under scenario 1, we expect CPI inflation to accelerate to 5.9% in Q4, and exceeding BI‟s target. In early 2013, the global commodity price increases will likely force the government to implement the fuel subsidy cuts that were thwarted earlier this year to contain the impact on the fiscal balance. This should lead to a jump in inflation.

By contrast, under scenario 2, we expect CPI inflation to decline precipitously starting in Q4 2012 as domestic demand sharply weakens and food inflation retreats with global trends.

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