Looking into Indonesia's economic development in September, Maybank IB noted that the country's headline inflation eased to 1.84% in September (vs. 2.12% in Aug), coming in at the lowest since November 2021. Headline prices fell -0.12% from the preceding month, the 5th consecutive month of deflation. Core inflation rose marginally to 2.09% (vs. 2.02% in Aug), with prices rising +0.16% month-on-month.

Food and Transport Inflation Cool Significantly
Easing food, beverage & tobacco inflation (2.6% vs. 3.4% in Aug) was the main driver of lower headline inflation. September prices dipped -0.6% from the previous month, extending their -0.5% fall in August. Key contributors to the decline were red chili, bird's eye chili, chicken eggs and chicken meat. Volatile food inflation more than halved to 1.4% (vs. 3% in Aug), with
prices declining by 1.3% from the preceding month.

Transport inflation cooled to +0.9% (vs. +1.4% in Aug), with prices falling -0.2% from the previous month on lower gasoline costs. Pertamina lowered non-subsidized fuel prices on September, amid cooling global oil prices and the strengthening rupiah.

Rise in Core Inflation Primarily Driven by Gold Jewelry, Amid Rising Gold Prices

The rise in core inflation (which excludes volatile food prices and government-controlled prices like gasoline) was primarily driven by personal care. Personal care & other services costs jumped +6.3% from a year ago (vs. +6% in Jul), driven by gold jewellery. Other CPI components that rose marginally include recreation, sports & culture (+1.6% vs. +1.5% in Jul) and education (+1.9% vs. +1.8% in Jul).Lower Headline Inflation Forecast to 2.3% in 2024 and 2.6% in 2025

Given this development, Maybank IB is lowering its average headline inflation forecast to +2.3% (from +2.8% previously),
given the benign year-to-date outturn (9M24: +2.5%). The benign inflation print suggests that consumer demand remains subdued. It will be key to watch how retail sales and consumer confidence perform in September. Inflation may have further room to fall in the remaining months, given high base effects stemming from the El Nino-induced run-up in food prices last
year. Moreover, the strengthening of the rupiah (USDIDR: +2.1% in Sep) will help cap imported price pressures. India (which accounts for ~40% of worldwide rice exports) lifted its export ban on non-basmati white rice on 28 September, which will beef up global rice supplies and cool international prices. Indonesia is a net rice importer, with rice accounting for approximately 4% of the CPI basket. Retail rice prices are easing, but rice inflation remains high at +8.3% in Sep.

The house forecasts headline inflation rising to a modest +2.6% in 2025 (lowered from 3% previously). Consumer demand may pick up gradually on the back of lower borrowing costs and incoming government's social programs. There will also be a scheduled value-added tax hike of 1% point on 1 Jan (subject to Prabowo's final decision), which may raise headline inflation by about +0.2% to +0.4% points