Indonesia’s inflation rate of 2.72% YoY in December 2025 marks a modest easing from November’s 2.86%, continuing a trend of moderate inflation that remains below the central bank’s 3% target. This geographic snapshot covers Indonesia’s domestic economy amid global inflationary pressures and regional supply chain adjustments. The temporal scope focuses on the last 12 months, highlighting inflation’s gradual rise from negative territory in early 2025 to a peak near 2.86% before the recent dip.

Drivers this month

• Food and beverage prices stabilized, contributing 0.12 percentage points (pp) to inflation.
• Energy costs declined slightly, subtracting -0.08 pp.
• Core inflation components such as housing and transportation remained steady, adding 0.15 pp.

Policy pulse

Bank Indonesia’s inflation target of 3% remains comfortably within reach, allowing for a cautious monetary stance. The current inflation reading suggests limited pressure for immediate rate hikes, supporting the central bank’s gradual normalization path.

Market lens

Immediate reaction: The Indonesian rupiah (IDR) appreciated 0.30% against the US dollar within the first hour post-release, reflecting market relief at the softer inflation print. Short-term government bond yields edged down by 5 basis points, signaling reduced inflation risk premiums.

Core macroeconomic indicators underpinning Indonesia’s inflation dynamics include GDP growth, unemployment, and wage trends. The economy expanded by 5.10% YoY in Q3 2025, supporting consumer demand without overheating. Unemployment held steady at 5.20%, while wage growth averaged 4.30%, consistent with moderate inflationary pressures.

Monetary policy & financial conditions

Bank Indonesia maintained its benchmark 7-day reverse repo rate at 5.25% in November, signaling a balanced approach. Financial conditions remain accommodative, with credit growth at 9.50% YoY and stable liquidity. Inflation below target reduces urgency for aggressive tightening.

Fiscal policy & government budget

The government’s fiscal deficit narrowed to 2.70% of GDP in 2025, aided by improved tax collection and controlled spending. Fiscal stimulus focused on infrastructure and social programs continues to support growth without stoking inflation.

External shocks & geopolitical risks

Global commodity price volatility, especially in energy and food, poses upside inflation risks. Geopolitical tensions in Southeast Asia remain contained but require monitoring for supply chain disruptions.

Chart insight

The inflation trend suggests a transition from recovery-driven price increases to a more stable inflation regime. The recent dip may signal easing supply-side pressures and effective monetary policy calibration.

Market lens

Immediate reaction: The Indonesian rupiah strengthened 0.30% post-release, while 2-year government bond yields declined by 5 basis points. Inflation-linked bonds saw modest gains, reflecting improved inflation expectations.

Looking ahead, Indonesia’s inflation trajectory will depend on several factors including global commodity prices, domestic demand, and policy responses. We outline three scenarios:

Bullish scenario (30% probability)

• Global commodity prices stabilize or decline.
• Domestic supply chains improve, easing cost pressures.
• Inflation falls below 2.50% by mid-2026, allowing for monetary easing.

Base scenario (50% probability)

• Inflation remains near the 3% target, fluctuating between 2.50% and 3.00%.
• Monetary policy remains cautious but accommodative.
• Fiscal discipline continues, supporting growth without inflation spikes.

Bearish scenario (20% probability)

• External shocks push commodity prices higher.
• Supply bottlenecks persist, driving inflation above 3.50%.
• Central bank forced into aggressive rate hikes, risking growth slowdown.

Structural & long-run trends

Indonesia’s inflation has historically averaged around 3.50% over the past decade, with recent years showing improved stability due to better policy frameworks and diversified supply chains. Continued structural reforms in agriculture, energy, and logistics will be critical to maintaining low and stable inflation long term.

Indonesia’s December 2025 inflation reading of 2.72% YoY reflects a stable macroeconomic environment with manageable price pressures. The slight decline from November’s 2.86% suggests easing supply-side constraints and effective policy calibration. While risks from global commodity volatility and geopolitical tensions remain, the balanced monetary and fiscal stance supports a positive outlook. Investors should monitor inflation trends closely as they influence interest rates, currency stability, and asset valuations.

Since 2020, BBCA’s stock price has shown a positive correlation with Indonesia’s inflation rate movements. Periods of rising inflation coincided with cautious central bank tightening, which initially pressured BBCA’s valuation. However, sustained moderate inflation supported credit growth and profitability, driving BBCA higher. The recent moderation in inflation aligns with a stable outlook for BBCA shares, suggesting limited downside risk in the near term.

Takeaway: Indonesia’s inflation rate easing to 2.72% YoY signals a stable macroeconomic environment, supporting cautious monetary policy and positive growth prospects.