Sun, 03 Sep 2006
Inflation falls to 14.9%, exports up 16.4%

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia's economic engine may not have revved up to full gear yet, but its gauges of inflation and exports are clocking better speeds, indicating chances of higher growth ahead.

On-year inflation in August continued to taper off to 14.9 percent, despite above-average increases in education-related costs, processed food and clothing prices, the Central Statistics Agency (BPS) reported Friday, opening up more room for further interest rate cuts.

Indonesia's exports until July, meanwhile, also extended their record-high levels, growing by 16.4 percent to US$55.7 billion from the same period last year, on the recent rise in the global prices of mining and plantation commodities.

BPS chief Rusman Heriawan said that on a month-to-month basis, consumers in the country had to pay 0.33 percent more on average for goods and services in August than in the previous month.

Inflation, however, was lower than July's 0.45 percent monthly consumer price index rise, and its 15.1 percent year-on-year inflation rate. To date from January until August, inflation in the country has increased by 3.67 percent.

Last month's inflation was driven mainly by a 7.35 percent increase in education-related expenses, with costs for recreation and sports making up 0.28 percent of the increase.

2006 Inflation trend (% yoy):

January..........................17.03%
February.........................17.92%
March............................15.74%
April............................15.40%
May..............................15.60%
June.............................15.53%
July.............................15.15%
August...........................14.90%

Source: Central Statistics Agency (BPS)

"We saw the new academic year in August, so there were more expenses for admission fees and text books," Rusman said.

The public also had to spend more on housing and utilities, and processed foods -- the prices of the two commodity groups increased by 0.35 percent, and contributed to a combined 0.14 percent increase in August's inflation rate. Staple foodstuffs, particularly spices, were down by 0.34 percent, lowering last month's average inflation by 0.12 percent.

Core inflation, which excludes volatile prices like food and regulated prices such as fuel, stood at an on-year rate of 9.68 percent and at 0.78 percent month-on-month -- slightly higher than in July, flashing a warning to the government to increase efforts to stabilize food and fuel prices.

But lower headline inflation in August will support the central bank's recent rate cuts and help accelerate growth, which has been waning due to high inflation and interest rates.

Bank Indonesia (BI) cut its key rate half a point last month to 11.75 percent, after previously hiking it to 12.75 percent, to contain inflation surging to 17 percent from last year's fuel price hike.

Analysts believe inflation may continue slowing as the effects from the January fuel price hikes wear off by October.

BI's board of governors is scheduled to hold their next policy meeting on Sept. 5.

Meanwhile, regarding the country's export performance, Rusman said Indonesia had in July managed to add another $8.8 billion to its export balance, a 4 percent increase on the previous month.

Total exports amounted to $55.7 billion for the January to July period, 16.4 percent higher than last year's total.

Non-oil and gas exports, meanwhile, grew 15.6 percent to $43.3 billion, on five commodities -- rubber (which in July reached $1.2 billion in exports), mineral fuels (Rp 994 million), copper ($463 million), crude palm oil and its derivatives ($415 million), and paper products ($300 million). Oil and gas exports grew by 19.2 percent.

Indonesia's January-July imports rose to $34.2 billion, with the country enjoying a $21.5 billion surplus in its trade balance.

"There is positive growth in imports of raw materials and capital goods, which signals positive growth prospects ahead for the processing and manufacturing industries," Rusman said.

Exports and government spending supported growth during the second quarter -- clocking in at an on-year 5.2 percent -- as consumption and investment remained slow.



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