• Registering the first episode of deflation since March 2000, Indonesia booked Feb-25 consumer prices at unexpected decline of 0.09% year-on-year, defying both SSI and market expectations of 0.39% and 0.55% increase and reversing the 0.76% gain recorded in January.
• ⁠Although the consumer electricity discount, along with the harvest period, had served as a supply-side cushion for inflation, demand was expected to be higher due to preparations for Ramadan. This suggests that consumption remained weak, potentially constraining growth in 1Q25. Meanwhile, the acceleration of the Purchasing Managers' Index (PMI) in February—rising to 53.6 from 51.9 in January 2025—appeared to be misaligned with pre-Ramadan consumption, leading to additional costs for producers in managing unabsorbed inventories.
• On a monthly basis, CPI declined 0.48% in February, marking the second consecutive monthly contraction following the sharp 0.76% drop in January—the steepest decline recorded since at least 2005. This deflationary trend contrasted with market expectations of 0.02% increase, underscoring the outsized effect of government subsidies on overall price movements. While administered price adjustments was one factor behind the deflation, weak seasonal demand post-holiday spending also contributed to the downturn.
• Looking ahead, the persistence of deflationary pressures will depend on the duration and scale of government intervention in administered prices and the potential recovery of consumer demand. For financial markets, the unexpected deflation may raise speculation about Bank Indonesia’s interest rate trajectory, particularly given its recent hawkish stance to defend the IDR. However, with core inflation remaining elevated, IDR continuing being under pressure and external factors—such as global oil price fluctuations and geopolitical risks—playing roles, BI is likely to maintain a cautious stance and keep its policy rate steady going forward.