US Inflation Data to Determine Fed Interest Rates, Rupiah Under Pressure

Jakarta - The United States will announce its April US inflation data, or Consumer Price Index (CPI), on Tuesday (12/5/2026) local time.

This report is crucial as it serves as the primary reference for the US central bank, the Federal Reserve (The Fed), in determining whether there will be a cut in the benchmark interest rate or if it will remain at high levels for longer.

If the inflation results are higher than expected or above 3.7 per cent, the US dollar is likely to strengthen, adding further pressure on the rupiah exchange rate. This is because higher interest rates will be more attractive to investors.

Foreign capital will be pulled from emerging markets such as Indonesia to be moved back to the US.

For context, the market expects annual inflation to be at 3.7 per cent or higher than the previous 3.3 per cent.

This expectation would mark the largest annual inflation increase in more than 2.5 years.

Meanwhile, core inflation (core CPI) is expected to be at 2.7 per cent annually.

Quoted from Reuters, high inflation conditions are likely to make The Fed maintain interest rates for longer.

The Consumer Price Index report from the Department of Labor is also expected to show an acceleration in monthly inflation rates.

The US-Israel war with Iran has driven oil prices higher, which is directly reflected in rising costs for petrol, diesel, and jet fuel.

Economists believe the second-round effects will be felt in the coming months.

Financial markets expect the US central bank to keep interest rates unchanged until 2027.

Consecutive high inflation figures will increase political risks for President Donald Trump and his Republican Party ahead of the November midterm elections.

Trump won re-election in 2024 largely due to his promise to reduce inflation.