- Indonesia's headline inflation rose to 1.87% YoY in June, driven entirely by food prices like rice. However, the weak core inflation (1.74% YoY ex-gold) is a concerning trend.
- The weak core inflation stems from two main pressures: a flood of disinflationary imports from China and, more significantly, slowing monetary inflation, as a prolonged period of high real interest rates has stifled private sector lending.
- Looking ahead, while a rate cut could stimulate loan growth, it presents an unavoidable trade-off with a weaker Rupiah. Maintaining the current course, on the other hand, is also a prudent option given the highly uncertain global conditions.
