The U.S. Bureau of Statistics announced on Wednesday that U.S. core inflation is expected to rise significantly in January 2025, exceeding the expectations of many economists. However, what is the impact on us in Indonesia and the global economy? Let’s take a closer look at the latest figures and what we can take away from this information.

January 2025 U.S. Inflation Breakdown

Here are the key data around inflation announced:

• YoY inflation: 3% (vs. consensus: 2.9%, Dec 2024: 2.9%)
• MoM inflation: 0.5% (vs. consensus: 0.3%, Dec 2024: 0.4%)
• YoY core inflation: 3.3% (vs. consensus: 3.1%, Dec 2024: 3.2%)
• MoM core inflation: 0.4% (vs. consensus: 0.3%, Dec 2024: 0.2%)

Why is inflation important?

This rise in inflation reinforces the higher-for-longer narrative, especially in the context of the risk of escalation of the trade war. Prior to the release of inflation data, US President Donald Trump revealed a retaliatory tariff policy against countries that impose tariffs on US products. A 25% tariff is imposed on all steel and aluminum imports into the U.S. This move clearly shows a retaliatory action that could slow down global economic growth.

The Fed’s Response to Inflation

The release of the inflation data coincided with the statement of the Fed Chief, Jerome Powell, who emphasized that there is no urgency to cut interest rates even though inflation remains above the 2% target. As per the analysis from the CME FedWatch Tool, the probability of a rate cut rose by more than 25 bps to 35.2%, down significantly from the previous 58.1%.

Market Reaction

After the inflation data was released, the US dollar index (DXY) had jumped 0.05% before closing 0.39% lower. Meanwhile, the yield on 10-year US government bonds also increased to 4.62%. In the stock market, the Dow Jones, S&P 500 and Nasdaq indices showed mixed reactions with mixed closings.

Economic Situation in Indonesia

In Indonesia, the JCI closed down 0.48%, with government bond yields rising to 6.63%. Meanwhile, the rupiah exchange rate strengthened 0.17% against the US dollar. Although expectations of interest rate cuts in the US have decreased, the Bloomberg consensus still expects Bank Indonesia to cut interest rates by another 50 bps to 5.25% until the end of 2025.

Investment Strategy in the Midst of Uncertainty

In the face of this volatility and dynamic economic development, it is important for investors to adjust their strategies. With the outlook for rate cuts and uncertainty ahead, locking in short-term bond yields could be an attractive option. Bonds such as PBS032 and PBS003 with yields of around 6.3% to 6.45% with maturities of 1.5 to 2 years are worth considering.

Conclusion

The rise in US inflation clearly has a wide impact, not only on the local economy but also on the global economy. Investors need to remain vigilant, adjust investment strategies so that they can still take advantage of opportunities in the midst of uncertainty. Changes in economic data are very likely to affect our investment patterns going forward. How do you plan your investments in the midst of this ever-changing situation?