Indonesia: Inflation drops to multi-decade low in January
Latest reading: Inflation plunged to 0.8% in January, from December’s 1.6%. January’s result marked the lowest inflation rate since March 2000 and was significantly lower than what markets had expected. Looking at the details of the release, prices for housing and utilities dropped for the first time in at least four years due to a government discount on electricity tariffs. That said, the effect of this policy will be temporary. Meanwhile, transport returned to growth following the previous month’s decline and food prices grew at a quicker pace.
Annual average inflation fell to 2.1% in January (December: 2.3%). Meanwhile, core inflation ticked up to 2.4% in January from the previous month’s 2.3%.
Lastly, consumer prices fell 0.76% in January over the previous month, swinging from December’s 0.44% increase. January’s result marked the weakest reading since April 2007.
Panelist insight: EIU analysts said:
“The effects of the electricity tariff cut will persist until the policy expires at the end of February. A renewal of the subsidy is unlikely, given a lack of revenue space resulting from the narrowing of the planned VAT increase. Inflation is therefore likely to return to close to 2% in March. However, that would still be very much in the comfort zone of Bank Indonesia (BI, the central bank), and inflation is set to remain relatively subdued throughout the rest of 2025. […] Softer inflation will provide the central bank with room to ease monetary policy, and we expect one more 25-basis-point rate cut in 2025.”