Indonesia’s Inflation Eases in November, Strengthening Case for Prolonged Policy Hold
Indonesia’s November CPI print reinforces a narrative of stability—subdued price pressures, anchored core inflation and a central bank in no rush to move. With inflation well within target and external risks still elevated, Bank Indonesia has the cover it needs to extend its policy pause, keeping the focus squarely on safeguarding the rupiah while supporting domestic growth.
Figure 1: Indonesia CPI and Bank Rate (%)
Source: BPS and Continuum Economics
Indonesia’s consumer inflation eased modestly in November, reinforcing expectations that Bank Indonesia (BI) will keep interest rates steady well into 2026 as it prioritises currency stability and a measured recovery in domestic demand. Headline CPI slowed to 2.72% yr/yr, down from 2.86% in October, while monthly inflation softened to 0.17%, signalling cooling momentum after a brief uptick in food and transport prices last month. With inflation now sitting comfortably in the mid-range of BI’s 1.5–3.5% target corridor, the latest print offers the central bank welcome reassurance at a time of heightened global volatility.
Beneath the Headline: Stable Core, Softer Food Pressures
Statistics Indonesia data show that the easing headline rate was driven by moderation in food inflation, following earlier spikes in items such as chilli and fresh produce. Transport costs—another source of October’s upward pressure—also cooled as fuel-linked components stabilised. Core inflation held steady in the mid-2% range, pointing to restrained underlying price pressures from wages and domestic demand. Importantly, non-food categories such as housing, healthcare, and personal services showed consistent but non-inflationary increases, underscoring the absence of overheating in Indonesia’s consumption basket. The drop in month-on-month inflation from 0.28% in October to 0.17% in November reinforces the view that earlier price pressures were transitory rather than structural.
For Bank Indonesia, the November numbers offer breathing space. At its November meeting, BI held the policy rate at 4.75% after three successive cuts earlier in the year, citing stable inflation and the need to maintain rupiah resilience amid stronger-for-longer US rates. The latest CPI print aligns neatly with that strategy. With both headline and core inflation well within the target range, and forward indicators pointing to inflation of 2–3% through 2026, BI has little incentive to tighten policy. At the same time, the central bank remains wary of further easing too soon, given persistent external risks—from US monetary policy to regional geopolitical tensions—that could pressure the currency. The November inflation data support a macro narrative of gradual improvement: domestic demand is steady but not overheating; supply-side pressures are episodic rather than entrenched; and the currency, while sensitive to global shifts, is being actively managed through BI’s intervention toolkit. As a result, we expect BI to extend its policy pause well into early 2026, with any future adjustment likely skewed towards cautious easing rather than renewed tightening.