Monthly Inflation:”Slightly Up”
Consumer Price Index (CPI) in August 2016 decreased due to the fall in volatile foods, transportation tariff, and mobile phone tariff after the end of Eid Al-Fitr celebrations. Furthermore, monthly inflation slightly decreased by 0.02% m-o-m from inflation 0.69% m-o-m in the preceding month. Based component, the deflation was posted by the foodstuffs component decreased by 0.68% m-o-m and the transportation and communication component also decreased by 1.02% m-o-m. Meanwhile, the inflation was posted by prepared food component rose by 0.41% m-o-m, the education, recreation, and sports component increased by 1.18% m-o-m and the clothing component rose by 0.40% m-o-m. Furthermore, the medical care component increased by 0.39% m-o-m and the housing component experienced rose by 0.41% compared to preceding month. Moreover, yearly inflation decreased to 2.79% y-o-y in August 2016, compared from 3.21% y-o-y in the previous month.
Deflation in the foodstuffs component in August 2016 mainly stemmed from lower prices of chicken meat, carrot, tomato, oranges, onion, rice, beef, spinach, apple, papaya, and garlic. We believe the price increase in these products were mainly due to
a. Higher domestic supply
b. Lower domestic demand (the end of Eid Al-Fitr celebration)
Deflation in the transportation and communication component in August 2016 came primarily from lower prices of air freight rates, inter-city transportation tariff, train tariff, and mobile phone tariff.
Meanwhile, inflation in the prepared foods component in August 2016 mainly stemmed from higher prices of noodles, rice with meal, mineral water, cigarette, white cigarette, and filter cigarette. Inflation in the education, recreation and sports component in August 2016 mainly stemmed from higher prices of tuition fee (elementary school, junior school, high school, and universities/academy). Inflation in the housing component in August 2016 still came primarily from higher prices of electricity rates, housing rents, and housing contracts.
Moreover, inflation in the medical care component in August 2016 still came primarily from higher price of body care services and cosmetics sub-sector. Inflation in the clothing component in August 2016 came primarily from higher prices of gold and jewelry.
On a yearly basis, inflation remains in check with the downward trend still intact, as the inflation decreased to 2.79% y-o-y in August 2016 compare 3.21% y-o-y in the previous month. Furthermore, year to date inflation in January–August 2016 reached 1.74% lower than 2.29% for the same time frame in 2015.
We expect inflation slightly up in September 2016. It is caused by a back rising food prices due to lower supply. Foodstuffs that experienced price increases such as cooking oil, eggs, rice, cayenne pepper, red pepper, onion, garlic, milk and instant noodles. Meanwhile, the price of gold jewelry, home rentals, rental homes, and motorcycles price still increased. Based on these factors, we expect the consumer price index in September 2016 may increase 0.23% m-o-m higher than in August 2016 which reached deflation 0.02% m-o-m. Furthermore, we expect the yearly inflation rate in September 2016 will increase to 3.08% y-o-y from 2.79% y-o-y in August 2016. Looking ahead, we also expect inflation may reach 3.15% y-o-y by the end of 2016 and 4.01% y-o-y by the end of 2017.
Meanwhile, we expect monthly core inflation remain benign in September 2016. Core Inflationary pressure was still caused by rising prices of motorcycles, housing rent, housing contract, and gold jewelry. We expect core inflation in September 2016 may reach 0.29% m-o-m lower than 0.32% m-o-m in August 2016. Furthermore, we expect the yearly core inflation in September 2016 would decrease to 3.17% y-o-y from 3.32% y-o-y in the previous month. Forward looking, we also expect core inflation may reach 3.40% y-o-y by the end of 2016 and 3.50% by the end of 2017.