DBS Group Research forecasts Indonesia’s February inflation at 4.1% year-on-year, linked to a low base from the same month last year (Feb 2025: -0.1% y/y). The ending effect of one-off stimulus measures from 1Q25 is expected to be seen in administered prices, which fell 9% y/y a year earlier.
Most inflation components are expected to remain subdued. Higher precious metal prices are projected to feed into personal care, with a double-digit rise for a fifth straight month.
Inflation Outlook And Policy Implications
Trade figures due the same day are expected to show the surplus staying above $3bn. A recent US court ruling may slightly lower Indonesia’s effective tariff rate, which could support exports going forward.
With February’s inflation figures due shortly, we are bracing for a jump to 4.1% year-on-year. This sharp increase, up from January’s 3.5% reading, is largely driven by a very low base from February 2025. Such a number would push inflation above Bank Indonesia’s target range, increasing pressure for a more hawkish monetary policy stance.
Given this outlook, we see potential strength in the Indonesian Rupiah in the coming weeks. Bank Indonesia has held its key rate at 6.00% for several consecutive meetings, but a high inflation print could be the catalyst for a change in tone or even a future rate hike. Traders should therefore consider derivatives that would benefit from a stronger Rupiah, such as buying IDR call options or USD/IDR put options.
The currency is also supported by strong trade fundamentals. We expect the trade surplus to remain robust at over $3 billion, continuing the streak of over 40 consecutive monthly surpluses we saw through 2025. A recent US court ruling that could lower tariffs on some Indonesian goods further reinforces this positive outlook for exports.
Equities And Sector Positioning
For equity markets, the signals are more mixed, suggesting a cautious approach for index derivatives. While stronger exports are a positive for listed companies, the prospect of higher interest rates to combat inflation could act as a significant headwind for the broader market. This divergence may warrant looking at options on specific export-oriented sectors rather than the entire IDX Composite index.
It is important to note that a key driver of this inflation spike is the rising cost of personal care, linked to elevated precious metal prices. While core inflation may remain subdued, the market’s initial reaction will likely be driven by the headline 4.1% figure. We will be watching to see if Bank Indonesia views this as a temporary cost-push issue or a more persistent threat.
