(Bloomberg) -- Indonesia’s inflation returned within the central bank’s 2%-4% goal in May, well ahead of forecasts.
Consumer prices increased 4% last month from a year ago, settling right on the upper end of Bank Indonesia’s target band and marking its smallest rise in a year. The central bank had earlier expected inflation to fall within the range in the third quarter, before Governor Perry Warjiyo said in a separate event on Monday that the gauge should end the year at 3.3%.
The latest print affirms Bank Indonesia’s decision to call an early end to its interest-rate hikes, while raising questions about the firmness of demand in the country amid weaker retail sales and flagging manufacturing activity. Still, the central bank is unlikely to ease borrowing costs so soon with the rupiah remaining vulnerable to the Federal Reserve’s uncertain monetary outlook.
“We expect BI to stay cautious against prematurely cutting the policy rate, especially in light of renewed focus on whether the Fed will hike further,” Barclays Plc economist Brian Tan said.
The biggest contributors to slowing inflation in May were transport and clothing prices, which fell 0.56% and 0.46% from the previous month, respectively, according to data from the statistics agency on Monday. Core inflation, which strips out the impact of volatile and subsidized items, eased further to an 11-month low of 2.66%.
--With assistance from Norman Harsono.
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