Indonesia: Inflation gathered traction in November – UOB

Indonesia's headline inflation in Nov rose to 2.9% y/y vs 2.6% in Oct on the back of higher food and transportation components, while the rest continued to moderate. The main driver of higher food prices is the El Nino phenomenon that has been occurring since the beginning of 3Q23, resulting in less water supply on farmland. In addition, the transition of the dry season to the rainy season in Nov also affected the rice harvest. On the other hand, higher inflation in the transportation component was driven by higher airfares and car fares due to a surge in logistics services towards the end of the year. 

We maintain our view for 2023 inflation to ease compared to last year (2022: 4.2%) due to several reasons such as moderation in household consumption and higher for longer interest rate. However, we expect that the lingering El Nino risk and the transition from dry to rainy season could potentially add some upside to the food inflation in the near term. In addition, the trend of increasing people mobility in Dec to celebrate the new year also seasonally impact to the higher airfares. These factors are expected to deliver some upside risks to the headline inflation in 4Q23.