ECONOMIC UPDATE – Inflation - The unexpected jump in food price

Inflation edged up to 2.83% YoY on rising food price

Statistics office (BPS) reported April inflation jumped to 0.44% MoM (2.83% YoY). This came above both our estimates and Bloomberg consensus. Although almost all inflation components were in line with our estimates, the jump in food price brought headline inflation above estimates. Meanwhile, core inflation remained stable at around 3.05% YoY.

 

Garlic, shallot and chili fueled food price jump

Food inflation in April jumped 1.45% MoM (2.29% YoY). April food price historically experienced deflation due harvest season. However, some factors boost food price in April 2019. First is lack of coordination of garlic import. Garlic became the main suspect of April inflation as its price skyrocketed by 41.4% MoM, contributing 0.09% to headline inflation. Actually, government through coordinating minister of economic has ordered Bulog (Bureau of Logistics) to import 100,000 tons of garlic in early March. However, trade minister revised the instruction to 8 private importers as the order to Bulog showed “unhealthy” competition behavior. The revised permit was released in late April but it was too late to muffle garlic skyrocketing price. However, we see garlic price may come down in following month due to the import supply despite Lebaran high season. Second factor is late harvest in several places as mentioned by coordinating minister of economic, mainly due to distributional problems. It made supply of shallot, chili, vegetables and some other food products were limited, hence boost the price. However, we also believe the pressure of food price will ease in May despite the start of holy month of Ramadan.

 

Airline ticket price is (still) climbing

Airline ticket price remained contributing to overall inflation by 0.03%. It denoted the magnitude and pressure to overall inflation was the same with previous months. We see the price uptrend may still continue until the end of 2Q19 due to high season of Ramadhan month and Lebaran festive. Entering 2H19 airline price inflation may start muting. However, there is also another risk from oil price as higher global oil price may lead to higher avtur price and give another reason to raise ticket price.

 

Non O&G Large Wholesale Price Index slightly increase at 3.49% YoY 

April’s Large Wholesale Price Index (LWPI) for non Oil and Gas increased by 0.39% MoM (1.32% YoY). The inflation LWPI inflation was mainly driven by agriculture sector of 1.24% MoM (-2.05% YoY) due to policy miscoordiation and late harvest problem as we have mentioned previously. Manufacture products price increased by 0.1% MoM (2.5% YoY) and mining/quarrying products price grew 0.03% MoM (3.52% YoY). On external trade, export and import price experienced deflation of –0.08% MoM (1.66% YoY) and -0.06% MoM (3.48% YoY), respectively

 

Maintain 3.2% inflation forecast for FY 2019

We retain our view of 3.2% YoY inflation for FY19. Inflation will be muted in May due to food price normalization despite Ramadhan high season. However, the price may jump in June due to Lebaran festive. We also believe the higher oil price will not make government hesitate to increase the subsidized price significantly. Government has said it will focus to boost growth in next 5 years and boosting growth needs stability of inflation.