ASIA NEWS NETWORK
WE KNOW ASIA BETTER
Indonesia’s inflation remains high
Publication Date : 03-09-2013
Indonesia posted a lower than expected inflation level in August, although the figure was still deemed worrisome as it remained above 8 per cent.
Price levels surged 1.12 per cent in August, putting full-year inflation during the month at 8.79 per cent, due to the increase in prices of food commodities such as fish, meat, shallots, potatoes and coconuts, all of which saw higher demand due to Idul Fitri festivities, the Central Statistics Agency (BPS) reported on Monday.
Also contributing to the high inflation during the month was the price increase of gold as well as public transportation costs, BPS spokesman Suryamin said.
“The rate of 1.12 per cent last month might look high, but actually it had declined significantly compared to previously,” Suryamin said, referring to the fact that Indonesia posted a monthly inflation of 3.29 per cent in July due to the fuel price hike.
The 8.79 per cent year-on-year inflation in August was lower than market expectations, with a Bloomberg survey of economists showing a median of 8.95 per cent inflation forecast for the month. It was also lower than Bank Indonesia’s (BI) target range of between 9 and 9.8 per cent by year’s end.
Year-on-year core inflation a measurement of long-term price levels that excludes prices of volatile foods and government-controlled commodities still stood at a relatively benign level of 4.48 per cent.
“The fact that August inflation prints are lower than our expectations is really positive news,” BI Deputy Governor Perry Warjiyo said on Monday.
He further predicted price levels which have soared since the government hiked fuel prices in June would fall to their normal range by September.
The normal range of inflation set by the central bank was between 3.5 and 5.5 per cent, a level that should materialise throughout 2014, BI officials have said.
The bond market, which is seen as the most affected from inflation figures, stabilized after the announcement of inflation figures. The yield of the government’s benchmark 10-year bonds fell one basis point to 8.4 per cent, prices from the Inter Dealer Market Association show.
Finance Minister Chatib Basri said on Wednesday that although the 1.12 percent monthly inflation in August was lower than the government’s earlier forecast of 1.3 per cent, there should be no room for complacency as there might be additional pass-through of imported inflation due to the persistent weakness of the rupiah.
The rupiah traded at 10,978 per US dollar on Monday, having plummeted by as low as 5.9 per cent in August, the biggest monthly drop in almost five years.
For every 10 per cent depreciation of the rupiah, there would be 0.8 per cent additional imported inflation, according to economists from Bank Mandiri, while those from Bank Central Asia (BCA) predict the pass-through effect to inflation would be 0.5 percent.
Hak Bin Chua, an Asean economist with Bank of America Merrill Lynch, warned that the recent depreciation trend of the rupiah could lift inflation to double-digit levels of between 10 and 10.5 percent by the end of the year.
“Further monetary tightening is likely [to be implemented by BI] to curb inflation, stabilize the rupiah and reduce the current account deficit,” Chua said in a note, predicting the central bank would hike its BI rate and overnight deposit facility rate (Fasbi) by 50 basis points each to 7.5 per cent and 5.75 per cent, respectively.
BI was the first central bank in Asia to raise interest rates this year, with Governor Agus Martowardojo already jacking up the BI rate for a cumulative 125 basis points to 7 per cent since taking office in May to contain inflationary pressure and support the ailing rupiah.