Annualized inflation slows down in August

Annualized inflation slows down in August

The Jakarta Post, Jakarta

Annualized inflation in August slowed down compared to the
previous month as a slower increase in the prices of basic food
commodities, the largest contributor to inflation, put a brake on
inflationary pressure.

The milder inflation should help ease pressure on Bank
Indonesia to push interest rate up. A higher interest rate
environment could impede the country's economic growth as bank
loans to finance business and consumption activities become more
expensive.

The Central Statistics Agency (BPS) announced on Wednesday
that inflation as measured by the consumer price index (CPI) in
August rose 6.67 percent from the same month last year, slower
than the annualized inflation rate of 7.20 percent registered in
July. Prices of all commodities and services increased
particularly as the rupiah weakened against the U.S. dollar.

The weaker inflation added to the bullish sentiment in the
stock market, where the Jakarta Stock Composite Index gained by
2.7 percent.

BPS said that on-month inflation in August grew 0.09 percent
from the level in July mainly due to higher cost of housing and
education. Prices of basic food commodities during the month,
however, declined by 2.13 percent. No explanation was given for
the decline.

Inflationary pressure has been on the rise during the past
previous months particularly due to the weakening of the rupiah
against the U.S. dollar, which made the cost of importing raw
materials became more expensive, thus putting pressure on prices
to move up. Indeed, the government has recently revised upward
its inflation target for this year to 7 percent from the original
forecast of 6.5 percent to better reflect the current development
in the rupiah and rising international oil prices.

The rising inflation has weakened consumers purchasing power,
which in fact contributed to a slowing down of economic growth
during the second quarter as household consumption had been the
main driver of the economy.

The slower economic growth has created a dilemma for the
central bank as it struggles to push interest rate up in a bid to
help curb inflationary pressure.

After keeping its benchmark interest rate unchanged at 7.37
percent two weeks ago, Bank Indonesia on Wednesday slightly
increased the interest rate on one-month SBI promissory notes to
7.38 percent.

The interest rate on the three-month SBI notes was unchanged
at 7.31 percent. An increase in the three-month rate would raise
the burden of the government in servicing its huge domestic
bonds, whose rates are linked with the three-month SBI notes.

Analysts forecast a year-end benchmark rate of not more than 8
percent.

Elsewhere, BPS said that the cost of education in August rose
by 5.10 percent on-month mainly due to a rising school tuition
fees at the start of the new school year.

Housing costs increased by 0.65 percent; transport and
communications 0.40 percent; while prices of processed foods,
beverages, tobacco and cigarettes rose 0.35 percent.