Food Price Corrections Trigger Deflation in August 2018 - Bank Sentral Republik Indonesia
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January 17, 2019

No. 20/ 70 /DKom 

Consumer Price Index (CPI) inflation was controlled within the target corridor of 3.5±1% in August 2018. The CPI recorded 0.05% (mtm) deflation in the reporting period after posting 0.28% (mtm) inflation the month earlier. Deflation was recorded despite the onset of Eid-ul-Adha, contrasting the historical average of 0.19% (mtm) inflation for the period over the past four years. Deflation of volatile foods (VF) and administered prices (AP) contributed to CPI deflation along with slower core inflation. Cumulatively as of August 2018, therefore, inflation was recorded at 2.13% (ytd) or 3.20% (yoy), which is still within the target range.

Corrections to the prices of several food commodities pushed VF deflation to 1.24% (mtm) in August 2018, compared with 0.90% (mtm) inflation the month earlier. Furthermore, VF deflation was also deeper than the historical average during Eid-ul-Adha over the past four years at 0.44% (mtm). The price corrections affected purebred chicken eggs, shallots, purebred chicken meat, spinach, red chilli and bird’s eye chilli. Annually, VF inflation stood at 4.97% (yoy), down from 5.36% (yoy) the month earlier.

Administered prices (AP) continued to experience deflationary pressures, primarily driven by corrections to airfares. AP deflation was recorded at 0.06% (mtm) in August 2018 after posting 0.68% (mtm) deflation in the previous period, thus bucking the historical inflation trend averaging 0.31% (mtm) over the past four years during Eid-ul-Adha. AP deflation in August 2018 was caused by further corrections to airfares, falling to pre-Eid-ul-Fitr levels. Annually, inflationary pressures on administered prices (AP) stood at 2.55% (yoy), climbing from 2.11% (yoy) the month earlier.

Core inflation was kept under control. Core inflation was recorded at 0.30% (mtm) in August 2018, decreasing from 0.41% (mtm) in the previous period. The main contributors of core inflation in the reporting period were school fees, rice with a side dish, residential rentals and bricks. Annually, core inflation stood at 2.90% (yoy), up slightly from 2.87% (yoy) in July 2018. Controlled core inflation in August 2018 was associated with policy consistency by Bank Indonesia to anchor rational inflation expectations, including rupiah exchange rate stabilisation measures in line with the currency’s fundamental value.

Moving forward, Bank Indonesia projects inflation within the target corridor for 2018 at 3.5±1%. To that end, Bank Indonesia will continue to strengthen policy coordination with the Central Government and Regional Administrations in order to maintain low and stable inflation.

Jakarta, 3rd September 2018

Executive Director



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