Jakarta. Indonesia's accelerating inflation, driven by higher import costs and production expenses, is increasing the likelihood that Bank Indonesia could raise interest rates again this year if price pressures continue, according to Bank Permata.

The central bank has tightened monetary policy aggressively this year to stabilize the rupiah and curb capital outflows. The central bank has raised its benchmark interest rate by a cumulative 100 basis points since May, bringing the BI Rate to 5.75% at its June 18 policy meeting.

Consumer prices rose 0.44% in June from the previous month and 3.34% from a year earlier, up from 0.28% monthly and 3.08% annual inflation in May, according to data released Wednesday by Statistics Indonesia (BPS). Year-to-date inflation reached 1.79% through June, compared with 1.38% in the same period last year.

Faisal Rachman, head of macroeconomic and financial market research at Bank Permata, said the latest increase was primarily driven by supply-side cost pressures that producers have begun passing on to consumers.

"The increase mainly reflects cost pass-through from higher supply-side pressures, particularly rising imported input costs caused by the rupiah's depreciation," Faisal said in a statement.

A weaker rupiah has raised the cost of imported raw materials, prompting businesses to increase selling prices and feeding inflation into the broader economy, he said.

Core inflation rose 0.23% month-on-month, lifting annual core inflation to 2.76% from 2.59% in May, supported by higher prices for engine lubricants, mobile phones and cooking oil.

Meanwhile, administered prices climbed 1.41% from the previous month, driven by increases in non-subsidized fuel prices, including Pertamax and Pertamax Turbo gasoline, as well as higher domestic airfares during the school holiday season. Volatile food prices also increased modestly.

Looking ahead, Faisal said inflation risks are likely to persist through the remainder of 2026 as supply-side pressures continue to build.

Domestically, he said expansionary fiscal policies could increase money supply, while the government's flagship Free Nutritious Meals program may boost food demand and add pressure to volatile food prices unless agricultural production and supply chains improve.

He also warned that the potential emergence of a strong El Niño weather pattern could disrupt agricultural output, tighten food supplies and accelerate inflation.

External risks remain elevated as well, with uncertainty surrounding U.S.-Iran peace efforts and the outlook for US Federal Reserve policy continuing to weigh on investor sentiment.

"These factors have encouraged a more risk-off market environment, limiting capital inflows and potentially putting further pressure on the rupiah, which would increase imported inflation," Faisal said.

Despite mounting price pressures, Bank Permata expects inflation to remain within Bank Indonesia's target range of 1.5% to 3.5% this year, largely because domestic demand remains relatively weak.

Assuming the government keeps subsidized energy prices unchanged, the bank forecasts headline inflation will ease to around 3.13% by the end of 2026.

However, Faisal said geopolitical tensions in the Middle East or a spike in global energy prices could force the government to adjust domestic fuel prices, strengthening the case for Bank Indonesia to tighten monetary policy further.

While Bank Permata sees scope for another interest-rate increase if inflation accelerates, its base-case scenario remains that the central bank will keep its benchmark rate at 5.75%, arguing previous tightening has already positioned policymakers for potential US Federal Reserve rate increases later this year.