Inflation Preview: Inflation Set to Moderate in March
Inflation set to moderate. We expect headline inflation to ease to 3.7% y-o-y from 4.8% in Feb, as base effects from last year s electricity discount fade, with monthly inflation moderating to 0.6% m-o-m from 0.7% in Feb (Exhibit 1). Core inflation is projected to edge up to 2.7% y-o-y (Feb: 2.6%), although monthly core inflation may soften to 0.3% (Feb: 0.4%). The Statistics Agency (BPS) is scheduled to release inflation and trade data on 1 April.
Lower food inflation, higher transport inflation. We expect monthly food inflation to increase by 1.1% m-o-m in Mar, moderating from 1.8% in Feb, implying 3.3% y-o-y, down from 3.7% in Feb (Exhibit 2). The moderation is mainly driven by garlic and red onion, while chicken egg and red chili continue to increase providing some offset. We expect transport inflation to increase by 0.6% m-o-m, reversing 0.1% contraction in Feb, implying 0.8% y-o-y, up from 0.1%, reflecting higher non-subsidized fuel and diesel prices.
We expect higher inflation in 2026. We continue to expect 2026 inflation to average higher at 2.8% from 1.9% in 2025 with upside risk from higher oil prices due to Middle East War, driven by low base effect from the electricity tariff discount in Jan Feb 2025 and stronger demand from the free nutritious meal program. In terms of trajectory, we expect inflation to average 3.7% in 1Q, before moderating to 2.4% in 2Q and 2.7% in 2H.
Trade Preview: February Goods Trade Surplus to Stay Low as Imports Recover
Goods trade surplus to stay low. We expect the goods trade surplus to remain steady at around USD1bn in February, unchanged from Jan (Exhibit 3). We expect exports to rebound by 3.4% m-o-m (Jan: -15.9%), supported by stronger commodity shipments, particularly CPO and tin, which recorded volume increases of 4.4% and 48% m-o-m, respectively, in Feb. Export growth is likely to rise to 4.4% y-o-y in Feb from 3.4% in Jan.
Imports set to recover. We expect imports to increase by 3.4% m-o-m in Feb, reversing from a 11% contraction in Jan, driven by higher capital goods imports linked to government projects. Raw material imports are also expected to strengthen, supported by higher manufacturing PMI to 53.8 from 52.6 in Jan (Appendix). Import growth is likely to moderate to 16.3% y-o-y from 18.2% in Jan, reflecting low base effect last year.
We still expect wider CAD in 2026. We continue to forecast the current account deficit to widen to 1.1% of GDP in 2026 from 0.1% in 2025 (BI forecast: 0.1-0.9% deficit). Our forecast reflects the impact of Trump Reciprocal Tariffs and spillovers from Freeport s Grasberg mining site closure.
