Tue, 05 Aug 2008
Although inflation rate in July showed an improvement against the June’s inflation, analyst says that inflation could be further down if the government works harder to improve some factors that affect the supply and demand process.



“I think July inflation was purely caused by the problems in supply and demand, especially in food and compressed gas,” says Senior Economist BNI, Ryan Kiryanto. “July inflation was not caused by monetary factor because BI has increased the rate to 8.75%,” adds Ryan who was quoted by Kompas in last Friday.

In last Friday, The Bureau of Statistic (BPS) announced July inflation of 1.37% or lower compared to the previous month of 2.46%. Food made a biggest contribution to the inflation of 1.85%. The impact of BBM price is no longer significant. However, the excess of it is more important.

“The high year-on-year inflation and year-to-year inflation shows that the government has to work harder to balance the supply and demand side. The government has to improve public facility such as highway, electricity and public transportation and pushing efficient energy consumption,” says Ryan. Poor infrastructure facility has bottlenecking the distribution process and production process. “The government must use the state budget to improve infrastructure facilities so that inflation from the demand side can be lowered down.”

Ryan estimated that Bank Indonesia will again increase the BI rate to 9%. But market is likely not to be shocked with the new rate. However, Ryan suggests that BI to keep the rate at 8.75% to maintain the market calm.

Bambang Soesatyo, Chamber of Commerce chairman of Monetary Committee says that the July inflation showed that the government hasn’t put maximum effort to reduce the cost push inflation. Bambang also shares the same views with Ryan that the high inflation in July was mostly affected by the supply and demand factor. The bad distribution scheme on important commodities such as food and LPG has given significant impact to the inflation. The price of LPG was reported to have increased very high, including in Jakarta. “Business players in Indonesia are aware that inflation will remain high,” says Bambang.

While worldwide financial market faced a severe performance due to subprime mortgage in America and the skyrocketing crude price, Indonesian Stock Exchange reported a good performance during the first semester. “We have seen volatile transaction on the market because of the subprime mortgage and crude price effect. IHSG was even corrected 17-18%, but in general, we have good performance during the first semester,” says the chairman of Indonesian Stock Exchange, Erry Firmansyah in Surabaya.

According to Erry, average transaction during the forst semester was 25% higher compared to daily transaction in year 2007 that was recorded Rp. 4.2 trillion. “In last Tueday, we recorded Rp. 5.4 trillion of transaction,” says Erry. This year, BEI is targeting 30 emitens. Of the target, 16 have been listed on the BEI.



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