Against the odds, govt sees decline in inflation

Against the odds, govt sees decline in inflation

Rendi A. Witular and Urip Hudiono, The Jakarta Post/Jakarta

Challenging mainstream predictions, the government is upbeat that
inflationary pressure will soon ease down, betting on its planned
efforts to keep the prices of goods at bay, by ensuring stocks of
goods and oil-based fuels, as well as stabilizing the rupiah.

Vice President Jusuf Kalla said on Monday the current high
inflation environment was just a temporary impact from the rise
in fuel prices on Oct. 1, which had created a one-shoot effect in
transportation costs.

However, "we are optimistic the inflation rate will decline
this month. It's possible because we've prepared several programs
to secure supplies of goods and fuel, as well as stabilizing the
rupiah," said Kalla after a gathering.

Kalla, a former tycoon with several business flagships such as
the Hadji Kalla Group and the Bukaka Group, did not say how such
efforts would be carried out.

The Central Statistics Agency (BPS) reported last week that
the fuel price increases of 126.6 percent on average had caused
the country's Consumer Price Index to rise by 8.7 percent in
October from September, or up 17.89 percent from October last
year.

Accumulatively, inflation had reached 15.65 percent as of
October -- a slap in the face for the government, which, via the
Coordinating Minister for the Economy Aburizal Bakrie, had
predicted the fuel price increases would only push on-year
inflation to 12 percent.

It remains to be seen whether the government's predictions on
Monday will this time ring true.

Observers believe the worsening economic situation will put
more pressure on the beleaguered economics team amid lingering
suggestions of a Cabinet reshuffle. President Susilo Bambang
Yudhoyono is now reviewing the performance of all ministers,
including his under-fire economics team, slated for completion
later this month.

BNI Securities head of research, Adrian Rusmana, doubted that
inflation would go down anytime soon, saying that the high
inflation environment would likely prevail until the first
quarter of next year on stronger expectations of further
increases in the prices of goods and services.

"I would say that the inflation level will remain high until
next year's first quarter. But it will ease by the end of the
second quarter," said Adrian, without giving any estimation.

Adrian said among primary drivers would be concerns among the
public and business community of a possible rise in power rates
next year, which could trigger an even higher production cost.

The high inflation would consistently push up key interest
rates, which would eventually slow down business activities,
apart from causing a slump in the capital market.

The country's banking industry will also suffer a severe blow
since there will be a decline in lending expansion and a rise in
non-performing loans (NPLs).

"Even with a low-interest-rate environment, banks are already
facing difficulties in expanding their loans because the public's
purchasing power and the financial capability of the corporate
sector have declined due to the high inflation," said Adrian.