01 Apr 2021 | News & Feature

Inflation in March 2021: A Mixed Picture, Indonesia’s Economic Outlook Remains in Flux

  • Indonesia’s Consumer Price Index (CPI) increased by 0.08% MoM (+1.37% YoY) last month, largely driven by rising food prices, likely a precursor to the fast-approaching month of Ramadhan.
  • The core inflation recorded a significant slump last month (+1,21% YoY vs 1,53% YoY in February), this may point to a renewed weakness in domestic demand.
  • Nevertheless, manufacturing PMI figures recorded its largest expansion since the pandemic began (53,2 vs 50,9 in February). Overall, these mixed signals paint a picture of Indonesia’s economic outlook that remains in flux.
  • Inflation appears to be more muted in Indonesia relative to several other countries. This may prove a boon for capital inflows. However, it should be noted that the correlation between moderate inflation and the exchange rate remains unclear, thus indicating broader capital market sentiment (e.g., expectations of Fed Policy) appears to be a much more potent force in guiding foreign capital flows.
  • The risk of supply constraints (especially from the increase of crude oil price) also means that low inflation will not always be a given.