Indonesia's headline inflation in Jun slowed to 3.5% y/y vs. 4% in May, underpinned largely by declining energy prices after Indonesia’s major fuel supplier adjusted fuel prices in Jun. In addition, slower food prices’ gain on the back of improvement in food supply and adequate food stocks also drove Foods and Beverages (F&B) sub-group inflation slower to sub-3% in Jun. 

Lower inflation in Jun can be attributed to the decline in most of the subcomponents, save for housing, water and electricity, health, education, and information and communications (info-comm). F&B’s inflation moderated the most, shedding off 1.4ppt to 2.9% from 4.3% prior, followed by household equipment, transport, and restaurant. 

Jun’s inflation has further returned inflationary pressures to BI’s target range of 2-4% and was lower than consensus 3.6%. Importantly, a more detailed breakdown of Jun's inflation suggests that core inflation continued to ease 6 months in a row and have somewhat returned to similar level seen during the onset of Covid-19. This has reaffirmed our view that a persistent decline of strength in consumer demand is likely to be at play. Jun’s inflation data has also reinforced our 2023 inflation forecast of 3.8%, moderating slightly from 2022’s 4.2%.