Inflation Data Cools Sharply

April’s inflation data delivered a mixed, yet market-friendly signal. The Producer Price Index (PPI), which measures inflation for businesses, fell sharply by 0.5% month-on-month, led by the largest-ever drop in services prices. There are signs that tariff-driven cost pressures are not feeding into broader inflation. Instead, businesses, particularly in trade-related services, appear to be absorbing higher costs, likely due to soft demand and heightened competition.

Meanwhile, the Consumer Price Index (CPI) also surprised to the downside, easing to 2.3% year-on-year from 2.4% in March, its lowest annual rate since February 2021. The April data came in slightly better than expected. However, core inflation (which excludes volatile food and energy prices) remained unchanged at 2.8% YoY, indicating persistence in price pressures, especially in shelter and other service components.

Trade Truce Could Strengthen Disinflation Trend

In a potential tailwind for markets, the U.S. and China are reportedly working on a 90-day trade de-escalation deal, signaling a pause in further tariff escalation. If realized, this could help ease residual cost pressures in global supply chains and reinforce the disinflationary momentum.

Simpan Views

Fed Continues to Wait and See

While the Federal Reserve targets a 2% inflation rate using the Personal Consumption Expenditures (PCE) price index, which stood at 2.3% in March, the central bank continues to adopt a cautious, wait-and-see approach to monetary policy. This caution reflects ongoing uncertainty tied to recent policy shifts, particularly President Trump’s sweeping moves on trade, immigration, and federal employment and spending.

Market analysts expect U.S. inflation to begin rising noticeably from the third quarter of 2025, potentially climbing to around 3% by year-end. It is projected to peak at approximately 4% in the second quarter of 2026 before moderating slightly to 3.7% later that year. As a result, concerns are increasingly centered around inflation pressures at the household level.

Fed policymakers have indicated they are closely monitoring how tariffs may affect both inflation and the labor market before adjusting their policy stance. Economists point out that the full impact of import duties is likely still unfolding. This is because some of the most aggressive tariffs were either paused or scaled back, while businesses rushed to build inventories before the tariffs took effect. In the early stages, many retailers and manufacturers also absorbed some of the cost increases rather than passing them on to consumers. As such, the inflationary effects of these tariffs may only start to become more visible in the May and June data.

We believe U.S. inflation is likely to persist and will continue to be a key concern for global investors, creating a layer of uncertainty in the investment landscape. Although asset prices have corrected and economic growth remains resilient, sentiment has shifted in favor of equities. Long-term bonds, on the other hand, remain under pressure as they offer little protection against potential reinflationary risks.

Indonesia Still Continues to Shine

The Rupiah has strengthened and stabilized, creating positive market sentiment across Bonds and Equities. If Bank Indonesia manages to balance currency stability with yield normalization, then a BI rate cut is increasingly possible. But this means that BI may allow the Rupiah to depreciate.

Investor sentiment is showing clear signs of improvement in Indonesia. The Jakarta Composite Index (JCI) has climbed to 7,100, reflecting a 3.7% gain over the past week and a 20% rebound from its early April low of 5,882. This recovery highlights the strength of domestic liquidity, which continues to support the market, alongside selective foreign interest in key blue-chip stocks.

In the Indonesian bond market, the yield curve has started to steepen, with short-term yields declining more rapidly than long-term ones. Despite this trend, we maintain a neutral stance on fixed income, given persistent U.S. inflation concerns and the uncertainty surrounding global interest rate expectations.

Room for Upside

With a stable macroeconomic backdrop, reasonable valuations, and strong domestic investor participation, we see a compelling case to increase exposure to Indonesian equities in the months ahead. We believe there is still room for further upside in Indonesian equities. Our Sustainable Equity Fund is well-positioned for long-term growth, aligning with both responsible investment principles and wealth-building objectives.