01 Mar 2021 | News & Feature

Inflation in February 2021: Divergence in Pace of Recovery

  • Indonesia’s Consumer Price Index grew by 1.38% YoY (+0.10% MoM) on February, as continued social restrictions weighed down on economic activity. However, the dramatic fall in new COVID cases could be a driving factor going forward, which bodes well for the return of mobility (particularly as Ramadhan approaches).
  • Mass vaccinations remain a prerequisite to the large spikes in Indonesia’s economic activity that a sharp uptick in inflation would presage.
  • Currently, most of the market’s inflationary concerns seems to be focused in US condition. The combination of a new round of fiscal stimulus and rapid pace of vaccination has the potential to trigger a relatively high inflation rate in the US this year.
  • While bond yield differentials remain stable, the potential divergence in US and emerging market economic recovery (including Indonesia) may push markets to disfavor risky assets such as emerging market currencies (including Rupiah).