Temporary surge, oil risks – UOB

UOB economists Enrico Tanuwidjaja and Vincentius Ming Shen note Indonesia‘s February CPI jumped to 4.76% year-on-year, above Bank Indonesia’s target, driven by base effects from electricity tariffs, higher Gold prices and food ahead of Ramadan. They expect inflation to normalize as base effects fade, but highlight food and Brent Oil as upside risks, with 2026 inflation now seen around 2.8–2.9%.

Base effects, food and oil risks

“Indonesia‘s headline inflation accelerated to 4.76% y/y in Feb, above Bank Indonesia’s target range and higher than 3.55% y/y in Jan. On a monthly basis, CPI rose 0.68% m/m, relatively contained after deflation (0.15%) in the prior month.”

“While this policy effect temporarily lifted headline inflation, its impact is expected to fade soon. Food inflation, however, warrants closer monitoring, at 4.01% y/y in Feb and consistently above 3% since Jul25.”

“Looking ahead, inflation is expected to normalize as the low base effect dissipates. Despite headline CPI exceeding BI‘s target range, the drivers are non-structural and unlikely to alter BI’s policy stance on interest rates.”

“There is, however, some upside risks to our forecast amid recent military aggression in Iran and the Middle East. Based on our revised Brent crude oil forecast of roughly around 15% average over the next 3 quarters ahead, and assuming it is sustained, we estimated the pass-through impact of around 0.32ppt to the overall inflation.”

“As such, our inflation forecast could average higher to around 2.8-2.9% this year, which is still within BIs target range, though closer to its upper end of the forecast range.”