Indonesia’s inflation accelerated to a nine-month high in June as higher fuel prices and firm underlying demand pushed consumer prices further towards the upper end of Bank Indonesia’s target range, reinforcing expectations that the central bank will maintain a cautious monetary policy stance.
According to a report by Kenanga Research, Indonesia’s headline inflation rose to 3.34% year-on-year in June from 3.08% in May, exceeding market expectations of 3.20% while remaining within Bank Indonesia’s inflation target of 1.5% to 3.5% for the fourth consecutive month.
On a monthly basis, inflation accelerated to 0.44%, the highest level in four months, compared with 0.28% in May, indicating persistent price pressures across the economy.
More notably, core inflation, which strips out volatile food and administered prices, climbed to 2.76%, the highest level in 38 months, suggesting underlying inflationary pressures continue to strengthen.
Fuel price hike drives inflation
Kenanga said higher fuel prices remained the biggest contributor to June’s inflation.
Transport inflation surged to 4.57% from 2.30% in May after Indonesia raised prices for unsubsidised fuel products, with Pertamax RON-92 increasing to 16,250 rupiah per litre from 12,300 rupiah, while RON-95 rose to 17,000 rupiah from 12,900 rupiah.
Food inflation remained elevated despite easing slightly to 4.67% from 4.94%, supported by higher prices for fresh fish, rice, cooking oil, red chillies, broiler chicken and beef.
Housing, utilities and household fuel costs also edged higher, while inflation in personal care and other services eased to 10.10% following lower gold jewellery prices.
Regional inflation remains mixed
Compared with neighbouring economies, Indonesia continued to record higher inflation.
Thailand’s inflation moderated to 2.8% in June from 2.9%, helped by lower fuel and food prices, while Singapore’s inflation remained unchanged at 1.8%, as softer telecommunications charges offset increases in transport, accommodation and food costs.
Central bank likely to stay defensive
Kenanga maintained its forecast for Indonesia’s inflation to average 3.1% in 2026, compared with 1.9% in 2025, citing persistent currency weakness and commodity-related price pressures.
The research house said inflation is likely to trend higher in the coming months, driven by firmer food and transport prices, as well as the continued depreciation of the rupiah.
While inflation remains within Bank Indonesia’s target range, risks are increasingly skewed to the upside should foreign exchange pressures persist.
Against this backdrop, Kenanga expects Bank Indonesia to maintain a defensive monetary policy stance, prioritising rupiah stability over monetary easing.
The research house said the probability of another 25-basis-point interest rate hike has increased as the central bank seeks to anchor inflation expectations, support the currency and cushion the economy against external risks.
