Indonesia: Inflation surprised to the upside in August – UOB

ndonesia's headline inflation in Aug rose to 3.3% y/y viz. 3.1% in Jul on the back of higher food and fuel prices. The increase in food prices was mainly driven by higher prices of rice, garlic, chicken meat, and eggs due to limited supply and higher production costs. Disruption in the global rice supply chain as a result of export restrictions by several rice exporters has caused rice prices to increase since early Aug.  

Higher inflation in Aug can be attributed to the increase in food & beverages (F&B) and transportation, while the other 11 components continued to moderate. F&B inflation rose to 3.5% (y/y) from previous month's 1.9% (y/y). Meanwhile, transportation inflation stood at 9.7% (y/y), up 0.1pt from previous' 9.6%.

Inflation in Aug 2023 in line with consensus forecast of 3.3% y/y. However, there is still notable potential upside risks to prices due to several factors. The risk of global food supply chain disruption has started to impact Indonesia's food prices, especially rice, wheat and corn. In addition, Pertamina's policy to increase fuel prices on Sep 1, 2023 is also expected to drive up fuel inflation to continue in Sep’23. All in all, we continue to maintain our view for the headline inflation forecast in 2023 will be at 3.8% y/y.