ECONOMIC UPDATE - Inflation heats up on gold and electricity tariff surge

Monthly inflation surges as electricity tariff discount ends

According to Statistics Indonesia (BPS), Indonesia recorded a monthly inflation rate of +1.17% MoM in Apr-25, continuing the inflationary trend from the previous month. This figure was slightly higher than our projection of +1.10% MoM and the consensus forecast of +1.02% MoM. The main driver of April’s inflation was a sharp prices increase in the Housing, Water, Electricity, and Household Fuel sector, which surged by +6.60% MoM and contributed 0.98 percentage points to the overall monthly inflation rate. This spike was primarily due to the expiration of electricity tariff discounts for postpaid customers. As a result, administered prices accelerated significantly to +5.21% MoM in Apr-25, up from +1.16% MoM in Mar-25. Meanwhile, core inflation edged up to +0.31% MoM in Apr-25 (vs. +0.24% MoM in Mar-25), mainly driven by higher gold jewelry prices. In contrast, volatile food prices declined by -0.04% MoM (vs. +0.33% MoM in Mar-25), driven by seasonal factors following the Ramadan period in March. Looking ahead, we expect the monthly inflation trend to persist in May-25, supported by increased demand during national and religious holidays. In addition, the expiration of toll road tariffs and airline tickets discounts are likely to add further upward pressure on prices.

 

Yearly inflation hits the highest level since Aug-24

Indonesia's annual inflation rate rose to +1.95% YoY in Apr-25, the highest level since Aug-24. However, this rate remains within Bank Indonesia’s inflation target range of 1.5-3.5% YoY. The April figure also exceeded our estimate of +1.88% YoY and the consensus forecast of +1.50% YoY. The Food, Beverages, and Tobacco sector was the largest contributor to annual inflation, adding 0.64 percentage points, with prices rising +2.17% YoY. Meanwhile, the Personal Care and Other Services sector recorded the highest annual price increase at +9.93% YoY, contributing 0.62 percentage points to overall inflation, mainly driven by a surge in gold prices. Aligned with this, core inflation edged up slightly to +2.50% YoY in Apr-25 (from +2.48% YoY in Mar-25), consistent with both our forecast and consensus estimate. Administered prices recorded an inflation rate of +1.25% YoY in Apr-25, reversing from a deflation of -3.94% YoY in the previous month. This turnaround was largely due to the termination of electricity tariff discounts. Meanwhile, volatile food inflation inched up to +0.64% YoY in Apr-25 from +0.37% YoY in Mar-25.

 

Inflation outlook revised to 2.5% YoY

Indonesia’s headline and core inflation rates rose to +1.56% YtD and +1.10% YtD in Apr-25, respectively, from +0.39% and +0.79% in Mar-25. Meanwhile, administered prices recorded an increase of +1.06% YtD, reversing from a deflation of -3.94% YtD in the previous month. In contrast, volatile food inflation slightly decelerated to +3.95% YtD in Apr-25, down from +3.99% YtD in Mar-25.

Looking ahead, we expect inflation to gradually increase as the impact from electricity tariff discounts continue to fades. Administered prices may rebound further, especially if the government decides to limit subsidized fuel. The government’s stance on energy subsidies and pricing policies will be a key determinant of inflation in the coming months. We also anticipate an uptick in core inflation, driven by rising gold jewelry prices as investors shift toward safe-haven assets amid global uncertainty. Volatile food prices may remain elevated, partly due to the rollout of the free nutritious meal program and ongoing climate risks. Additionally, Rupiah depreciation could lead to higher imported inflation. Considering these risks, we revise our FY25 forecasts for both headline and core inflation to 2.5% YoY.