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Senin, 04 Juli 2011

Higher than expected inflation, yet core went flat - Mandiri

Consumer price index accelerated 0.55% mom in Jun11, exceeding our forecast of 0.43% and 0.37% consensus, respectively. Despite the monthly inflation was higher than last month, the annual reading continued to ebb, reaching 5.54% yoy. Surprisingly, annual core inflation was flat at 4.63% vs 4.64% in May, despite indication of strong demand pressure. At this juncture, we expect that inflation will likely ease in the 2H11, due to last year’s high base and relatively favorable weather. However, there is still an upper side risk due the possibility that the government could cut fuel subsidy, even the odd is getting smaller as the government plan to increase budget deficit in light of increasing financing needs for fuel subsidy. We maintain our inflation forecast at 5.7% by YE11. Based on our observation above, we think the central bank will maintain the policy rate unchanged in the next board meeting (12 July), however we still expect another 25-bp hike in BI rate to 7% later this year.

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