Indonesia’s Inflation Cools in May

Indonesia’s inflation eased to 1.60% in May, opening room for Bank Indonesia to cut rates. With the JCI rebounding, explore why now may be the time to invest in Indonesian equities.

What Happened

Indonesia’s annual inflation rate eased to 1.60% in May, down from 1.95% in April, and came in below both market expectations of 1.90%. On a monthly basis, we even saw a deflation of -0.37%, reversing the 1.17% spike in April. This marked the first monthly deflation in three months, driven largely by the post-Eid normalization in volatile items like food and transportation.

This reading reinforces the view that price pressures remain subdued, with core inflation still soft, highlighting weak domestic demand and businesses' continued reluctance to pass on higher costs to consumers. Interestingly, this disinflation has persisted despite the rupiah appreciating against the U.S. Dollar, showing just how anchored demand-side pressures are. Additionally, the recent rally in global gold prices, driven by geopolitical uncertainties, also contributed modestly to annual inflation via the volatile goods basket.

Let the Cuts Begin

This soft inflation print gives Bank Indonesia (BI) more room to remain accommodative, especially as the economy continues to recover. With inflation now comfortably below the 1.5–3.5% target range for 2025, there's increasing space for policy easing to support growth if needed. BI has already taken a pro-growth stance, cutting its benchmark rate from 5.75% to 5.50%, and we see further rate cut potential ahead, conditional on rupiah stability and the external rate environment.

That said, with global interest rate uncertainty still looming, especially from the Fed, BI is expected to remain cautious and data-dependent before pursuing any additional dovish steps.

Simpan Views

Inflation to Remain Contained - If Under Control

Looking ahead, inflationary pressures are likely to stay contained, provided there are no major shocks from energy markets or currency depreciation. Key factors to monitor include potential adjustments in energy subsidies and core inflation dynamics, which will help determine whether this low-inflation path can hold through the second half of the year.

Also worth noting, the civil servant bonus distributed in early June is expected to temporarily lift household spending and possibly show up in short-term demand-side indicators.

Meanwhile, the broader disinflationary trend is likely to persist, supported by lower global oil prices already reflected in recent domestic fuel price cuts. However, the government’s plan to roll out stimulus packages aimed at boosting domestic consumption could eventually feed into core inflation, depending on the scale and pace of implementation.

How are our Funds Doing?

Our Sustainable Equity Fund continues its path to recovery, moving in tandem with the Jakarta Composite Index (JCI), which has been buoyed by consistent foreign inflows. Our core strategy remains firmly in place balancing growth momentum with high-quality stocks. We are selectively increasing exposure to momentum-oriented stocks that show strong fundamentals and consistent liquidity names we believe are best positioned to capture short- to medium-term upside. At the same time, we continue to hold high-quality blue-chip stocks that are likely to attract sustained foreign interest as global investors rotate back into Indonesian equities.

This balanced approach between capturing market momentum and anchoring on solid, long-term performers positions the fund to benefit from both current market optimism and ongoing structural strength.

Put Your Capital to Work

With foreign interest returning, valuations still attractive, and macro fundamentals improving, now could be an opportune time to continue increasing your exposure to Indonesian equities. Our Sustainable Equity Fund offers a disciplined, research-driven strategy built for long-term growth, with the agility to respond to market momentum.