ECONOMIC UPDATE – Inflation - Inflation spikes at the start of Ramadan

Food and gold drive highest monthly inflation since Apr-25

Monthly inflation accelerated to 0.68% MoM in Feb-26, rebounding from -0.15% MoM in Jan-26 and marking the highest reading since Apr-25, exceeding both our forecast (0.42% MoM) and market consensus (0.30% MoM). The pickup was mainly driven by the food, beverages, and tobacco category, which rebounded to 1.54% MoM from -1.03% MoM and contributed 0.45 percentage points to headline inflation, reflecting a sharp rise in volatile food prices (2.50% MoM in Feb-26 vs -1.96% MoM in Jan-26) amid stronger demand during Ramadan. In addition, personal care and other services inflation edged up to 2.55% MoM from 2.28% MoM, contributing 0.19 percentage points, largely due to higher gold jewelry prices, which also lifted core inflation to 0.42% MoM from 0.37% MoM previously. In contrast, transportation prices continued to record monthly deflation at -0.11% MoM from -0.46% MoM, reflecting the fading impact of the student holiday season in December and January, while administered prices also remained in deflation at -0.03% MoM compared with -0.32% MoM in the prior month.

 

Base effect lifts YoY inflation

Headline inflation accelerated to 4.76% YoY in Feb-26 from 3.55% YoY in Jan-26, marking the highest level since Mar-23 and exceeding both our forecast (4.49% YoY) and market consensus (4.30% YoY). The increase was largely driven by a low base effect, as electricity tariff discounts introduced in early 2025 had suppressed prices last year, pushing the latest reading above the central bank’s 1.5%–3.5% target range. In line with this, housing inflation (including electricity) surged to 16.19% YoY, contributing 2.26 percentage points to headline inflation, while administered prices rose significantly to 12.66% YoY from 9.71% YoY in Jan-26. Prices in the personal care and other services category also climbed to 16.66% YoY, contributing 1.12 percentage points, mainly due to higher gold prices. In line with this increase, core inflation strengthened to 2.63% YoY, the fastest pace since May-23. Meanwhile, food, beverages, and tobacco inflation increased to 3.51% YoY from 1.54% YoY in Jan-26, contributing 1.05 percentage points to overall inflation, largely driven by stronger food demand during Ramadan, with volatile food inflation also rising sharply to 4.64% YoY from 1.14% YoY in Jan-26.

 

Inflation to cool after Mar-26, but global and domestic challenges remain

Looking ahead, yearly inflation is expected to gradually ease as the low base effect from last year’s electricity tariff discount faded. However, annual inflation will likely remain above Bank Indonesia’s target range in March due to stronger demand during Ramadan and Eid al-Fitr, before moderating in the following months. We maintain our 2026F inflation forecast at 3.0% YoY, still within the BI’s target range and slightly above last year’s 2.9% YoY.

 

That said, risks remain. Escalating geopolitical tensions involving Iran, United States, and Israel may lift oil prices, raise import costs, and pressure the Rupiah. Domestically, the government needs to ensure adequate food supply to support the Free Nutritious Meal Program (MBG) and maintain food price stability. In addition, the government should strengthen governance to preserve investor confidence and Rupiah stability, especially amid MSCI’s freeze and Moody’s recent downgrade of Indonesia’s sovereign credit outlook.