Inflation Preview: Softer Food Prices Ease Headline Inflation in October

Headline inflation set to moderate. We expect inflation to moderate to 2.6% y-o-y in Oct from 2.7% in Sep, with monthly inflation at 0.02% m-o-m, down from 0.2% in Sep, driven by lower food prices (Exhibit 1). Core inflation is likely to remain stable at 2.2% y-o-y, unchanged from Sep, with monthly inflation steady at 0.2%. The Statistics Agency (BPS) is scheduled to release the data on 3 Nov, along with Sep trade data.

Lower food inflation. We expect monthly food deflation of 0.1% m-o-m in Oct, reversing a 0.4% increase in Sep, implying 5.4% y-o-y, down from 5.5% in Sep (Exhibit 2). The decrease is mainly driven by a 6.4% m-o-m decline in red onion (vs -24% in Sep), reflecting higher production post-harvest season, followed by rice and cayenne pepper. By contrast, prices of chicken egg and chicken meat increased, providing some offset (Appendix).

We maintain lower average inflation forecast. We expect transport inflation to remain stable at -0.01% m-o-m in Oct, unchanged from Sep, implying 0.4% y-o-y, up from -0.1%. The increase mainly reflects a low base effect from last year s non-subsidized fuel and diesel price cuts. We continue to expect lower average inflation to 1.8% in 2025 from 2.3% in 2024 before increasing to 2.6% in 2026, mainly due to the low base effect from this year s electricity tariff discount. We expect average core inflation at 2.3% this year (vs. 2% in 2024).

Trade Preview: Goods Trade Surplus Likely Narrows on Higher Imports

Goods trade surplus set to narrow. We forecast the goods trade surplus to narrow to USD3.2bn in Sep from USD5.5bn in Aug (Exhibit 3). We expect exports to drop by 4.8% m-o-m in Sep, down from 0.9% increase in Aug, driven by commodities, particularly a sharp 39% m-o-m drop in CPO export volumes and softer manufacturing exports with moderating China import from Indonesia (Appendix). Export growth is likely to increase to 7.3% y-o-y in Sep from 5.8% in Aug, reflecting low base effect last year.

Imports pick up. We expect imports to increase by 5.8% m-o-m in Sep, reversing 5.3% contraction in Aug, driven by raw material and capital goods imports, supported by higher public capex and consumption goods, in line with a rebound in retail sales to 2.8% y-o-y from 1.8% in Aug. However, moderation in China exports to Indonesia may provide some offset. Import growth is likely to increase to 8.6% y-o-y from -6.6% in Aug.

We still expect wider CAD in 2025. We maintain our current account deficit forecast at 1.1% of GDP in 2025 and 1.3% in 2026 (2024: 0.6%), driven by weaker global growth from Trump s Reciprocal Tariffs and lower commodity prices. The Freeport Grasberg closure adds upside risk to our CAD forecast, with a potential sharp output drop in 4Q25 2026.