Indonesia’s inflation accelerated in May, driven by rising food and transportation costs, strengthening expectations that Bank Indonesia (BI) could raise interest rates as early as this month to support the rupiah and contain price pressures.
According to data highlighted by Kenanga Investment Bank, Indonesia’s headline inflation rose to 2.84% year-on-year in May from 1.95% in April, marking the third consecutive month within BI’s target range of 1.5% to 3.5%.
On a monthly basis, consumer prices increased 0.28%, faster than April’s 0.13% rise and above the 2025 monthly average of 0.24%, reflecting persistent inflationary pressures.
Core inflation, which excludes volatile food and government-administered prices, edged up to 2.59% from 2.44% in April, reaching its highest level in three months and indicating firmer underlying price trends.
Food prices were the main driver of inflation during the month, with the food, beverage and tobacco category climbing 4.94% year-on-year, the highest level in seven months. The increase was attributed to higher prices for fresh fish, rice, broiler chicken and cooking oil.
Transportation costs also rose sharply, with inflation in the segment accelerating to 2.30%, the highest level in nearly three years, amid higher airfares and vehicle prices.
Housing, water, electricity and fuel costs recorded a modest increase to 1.00%, while inflation in personal care and other services eased to 10.35% due to softer gold jewellery prices.
Across the region, inflation trends were mixed but generally pointed higher. Thailand’s inflation surged to 2.9%, its highest level in 38 months, largely due to rising fuel prices linked to ongoing Middle East tensions. Meanwhile, Singapore’s inflation remained stable at 1.8%, staying comfortably within the Monetary Authority of Singapore’s target range.
Kenanga maintained its 2026 inflation forecast for Indonesia at 3.1%, up from an estimated 1.9% in 2025, citing continued geopolitical uncertainties in the Middle East, higher energy costs and persistent weakness in the rupiah.
The research house said inflation is likely to trend gradually higher in the coming months as external pressures feed through to domestic prices, particularly in food and transportation.
Against this backdrop, Kenanga expects Bank Indonesia to take a more proactive approach to safeguarding macroeconomic and financial stability. While inflation remains within the central bank’s target range, the weakening rupiah — which has been approaching the 18,000 level against the US dollar — may prompt policymakers to act.
The firm forecasts a 25-basis-point interest rate increase this month, aimed primarily at stabilising the currency, anchoring inflation expectations and strengthening Indonesia’s external resilience amid heightened global uncertainty.
