Wed, 02 May 2007
From: The Jakarta Post
By Urip Hudiono, The Jakarta Post, Jakarta
Indonesia's economy appears to be shaping up well, with the latest figures showing inflation remaining well under control, which should spur more spending and investment ahead.

Consumer prices actually dipped 0.16 percent in April, the Central Statistics Agency (BPS) reported Tuesday, on the back of recent decreases in the prices of foodstuffs, particularly of rice, the country's staple. Year-on-year inflation stood at 6.29 percent.

April's monthly fall in prices continues the trend of slowing inflation that has been evident since January, when inflation came in at 1.04 percent. On-year inflation has, meanwhile, been kept in check after a slight uptick to 6.52 percent in March.

The prices of staple foodstuffs fell by 1.3 percent in April, BPS director Rusman Heriawan said, contributing 0.37 percent to last month's fall in prices.

"Rice prices fell by 5 percent, while red chilis fell by 19 percent," Rusman said.

Indonesian consumers also paid 0.03 percent less on education and recreational costs.

"The recent strengthening of the rupiah has also helped keep down imported inflation (inflation resulting from increases in the prices of imported goods), besides lower food prices," said Standard Chartered Bank economist Fauzi Ichsan.

The prices of other goods, however, continued to rise last month, albeit slightly. Consumers had to pay 0.61 percent more for clothing and 0.37 percent more for processed foods. The BPS also noted higher prices for poultry, meat, eggs, cooking oil, sugar and gold jewelry.

Core inflation for April -- which excludes volatile food and administered fuel prices -- increased at a monthly rate of 0.2 percent, while year-on-year inflation rose by 5.74 percent.

With inflation well in check, the central bank should have adequate room to cut its key interest rate again, Fauzi predicted, after holding it at 9 percent last month.

Lower inflation and interest rates should in turn help drive more growth in Indonesia's consumption-based economy, with full-year growth tipped to reach 6.3 percent compared to last year's 5.5 percent.

Fauzi said another quarter percentage point rate cut was on the cards, a prediction seconded by BNI economist Ryan Kiryanto.

"Another rate cut is likely, especially if the U.S. Fed rate also comes down," Ryan said. "The least we can expect is another hold decision."

Bank Indonesia's Board of Governors is scheduled to convene its next monthly policy meeting May 8.

April's fall in prices had little effect on the country's capital markets.

The Jakarta Stock Exchange Composite Index rose by only 0.1 percent to 2,001.178 as selling of bluechip shares offset market expectations of lower inflation.

The rupiah remained unchanged at Rp 9,075 against the U.S. dollar.



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