Indonesia's inflation picks up again in June

The pressure came as food and process food prices as well as housing cost all rose faster than they did in May.

A weak rupiah also contributed to the re-acceleration of headline inflation, with OSK-DMG predicting that upcoming months will see inflation remain as high or spike even higher.

Here's more from OSK-DMG:

As we had expected, headline inflation reaccelerated in Jun, rising by 4.53% yoy (cf. our forecast of 4.51%) after decelerating to 4.45% in May. In comparison, market had expecting inflation to dip to 4.36% in the month. Core inflation also reaccelerated marginally in June, increasing by 4.15% yoy vs. 4.14% in May. Food and process food prices as well as housing cost (accounting for over 60% of the CPI basket) accelerated by 7.19%, 5.39% and 3.32% yoy respectively in Jun from 6.87%, 5.32% and 3.27% in May, lifting inflation higher in the month as a result. The weak rupiah in the month, which fell about 0.5% in Jun, probably also added to upward pressure on headline inflation.

The contraction in exports by 8.6% yoy in May was not unexpected, unlike Apr’s revised dip of 2.3% that caught the market off-guard at that time. The poor export performance was largely due to yoy contractions in both non-oil and oil shipments in the month, and unfavorable base effects. Imports rose by 16.1% yoy in May from 13.8% in Apr on the strength of non-oil imports (up 21.7% yoy). The trade balance remained in negative territory for the second straight month in May at US$486m but the upside was that it was a smaller deficit than Apr’s US$765m.

The data continues to point higher inflation ahead, especially with the Muslim fasting month upcoming. We still expect inflation to come in at the top the official forecast of 3.5-5.5%. In addition, continued weakness in the rupiah could add pressure on inflation via higher imported prices. At the same time, little support to the economy from the external sector is likely given the weak external demand arising from the ongoing crisis in the Eurozone. Nevertheless, economic growth this year, which is expected to remain healthy, would likely be solely driven by domestic factors. Seen in this light, we expect BI to hold its benchmark interest rate steady at 5.75% at its next policy meeting on 12 Jul while using macro-prudential and liquidity measures to temper inflationary expectations and to stabilize the rupiah. Further measures to curb imports (especially oil) and to encourage exports can be expected to help stabilize the rupiah and narrow the trade deficit, and hence current account deficit.