Disruptions to rice production due to the El Nino phenomenon caused inflation in October 2023 to rise but not too much, with general inflation recorded at 2,56% (yoy), within BI's target range. The trade balance in October recorded an increase in surplus to USD3,48 billion, supported by a less severe decline in exports and imports compared to the previous month. Apart from that, the Rupiah strengthened against the US dollar after BI took the decision to raise interest rates at its October 2023 meeting and the Fed decided to keep interest rates unchanged. The Fed is likely to maintain its policy interest rate at the FOMC meeting in December 2023. Although pressure on the Rupiah due to global market uncertainty still exists, the combination of these four factors leads BI to maintain its interest rate at 6,00% this month.
Rice Prices Soar Due to El Nino Which Causes Inflation to Increase
Still within the central bank's target range and in line with market expectations, general October inflation was recorded at 2,56% (yoy), a slight increase compared to September 2023 of 2,28% (yoy). General inflation has been within BI's target range for seven consecutive months or since May 2023 when inflation reached the upper limit of the target range. As in the previous month, the main contributor to inflation in October was the increase in food prices as indicated by annual inflation of 5,41% (yoy) in the food, beverage and tobacco expenditure group, contributing to inflation in October of 1,39%. On a monthly basis, inflation in October generally slowed to 0,17% (mtm) from 0,19% (mtm) in the previous month, due to increases in rice prices and non-subsidized fuel prices. In early October 2023, Pertamina increased the price of non-subsidized fuel including Pertamax, Pertamax Green, Pertamax Turbo, Dexlite, and Pertamina Dex. However, the impact of this increase in fuel prices is not too big because Pertamina only increased the price of non-subsidized fuel which is not used by most consumers and the price increase was relatively small with an average of 5,55%. This is different from September last year when the Indonesian Government increased not only the price of Pertamax but also the subsidized fuel Pertalite and Diesel, with an average price increase of 26,25%.
Read the Macro Analysis Series, BI Board of Governor Meeting, October 2023 edition here.
