Indonesia's May CPI rose 3.08% year-on-year, with inflation rebound increasing pressure on central bank policy

(1) Due to the impact of rising energy prices transmitting through the entire industrial chain, Indonesia’s Consumer Price Index (CPI) rose by 3.08% year-on-year in May, higher than April’s 2.42%; the prices of sub-items such as food, tobacco, alcohol, housing, utilities, and household fuels generally increased. Core inflation climbed to 2.59%, and cumulative inflation from the beginning of the year to May reached 1.35%.(2) Geopolitical conflicts in the Middle East have pushed up international energy prices, coupled with the depreciation of the Indonesian rupiah, further intensifying inflationary pressure in this Southeast Asian economic powerhouse. Analysts believe that as the costs of imports and energy gradually transmit, further upward pressure on inflation will become more apparent in the coming months.(3) ANZ economists stated that April was most likely the low point for inflation, and subsequent increases may approach the upper end of Bank Indonesia’s 1.5%–3.5% target range. Barclays economists pointed out that if the local currency continues to weaken, the central bank may need to consider further tightening monetary policy.