(Oct 1): Indonesia’s consumer prices rose at their slowest pace in nearly three years, making it likely the central bank could consider more easing this month, amid easing food and fuel costs and growing concerns about tepid consumer demand.

Inflation rose 1.84% in September from a year earlier, the statistics office said on Tuesday. That’s the lowest headline figure since November 2021, and comes in below the median forecast of 2% in a Bloomberg survey of economists.

On a monthly basis, the consumer price index fell by 0.12%. This extends Indonesia’s deflationary streak since May, making it the longest since 1999, according to the statistics agency.

The monthly deflation was mainly driven by supply-side factors, as the harvest season made commodities like chili and tomatoes abundant, said Amalia Adininggar Widyasanti, the acting head of the statistics office. Prices of non-subsidised fuels and poultry, as well as school fees, were also on the decline, she said.

The rapidly cooling inflation has also raised concerns over the health of consumer demand in Southeast Asia’s largest economy, where the middle class has been shrinking. Manufacturing activity has been contracting since July, and factory closures have led to mass layoffs.

“It needs to be studied further to conclude whether this indicates a decrease in purchasing power. It cannot be concluded solely by the inflation rate figure,” Widyasanti said.

Bank Indonesia delivered a surprise interest rate cut last month, with policymakers saying more needs to be done to support economic growth. Economists expect more easing in the fourth quarter, likely as soon as the central bank’s next meeting on Oct 16.

“With Bank Indonesia having already entered rate-cutting mode in September, we expect the central bank to seize on the drop in headline inflation as a further reason to cut 25 basis points again in October,” Barclays plc economist Brian Tan wrote in a note. 

To be sure, core inflation, which strips out the impact of volatile food and energy prices, continued picking up to 2.09% in September, due to rising prices of gold jewellery and coffee. It remains in the low end of Bank Indonesia’s 1.5%-3.5% target.

“Our base case is now for Bank Indonesia to cut its policy rate by 25 basis points in all three of its remaining meetings this year, followed by two more moves in 2025,” Tan said. 

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