Bank Indonesia expects inflation to slow in 2006

Bank Indonesia expects inflation to slow in 2006

Wahyudi Soeriaatmadja, Bloomberg, Jakarta

Bank Indonesia, the central bank, expects the inflation rate to slow to about 8 percent next year after raising interest rates four times this year, Governor Burhanuddin Abdullah said.

"The central bank is raising rates now so that inflation will stabilize at between 7 percent and 8 percent, assuming investment and exports grow as expected," Abdullah told reporters in Jakarta today.

The central bank, two days ago, raised its inflation forecast for this year to 14 percent because of the government's more-than-expected fuel-price increases. Bank Indonesia expects inflation to accelerate 5 percentage points in October.

"There are three events happening at the same time in October - fuel price increases, the Muslim Ramadan month, and the rising costs of transport and goods," Abdullah said.

Indonesia almost tripled kerosene prices and more than doubled diesel tariffs starting on Oct. 1 to cap energy subsidies. Gasoline prices rose by 88 percent.

Every year in Indonesia, the majority Muslim population spends more on food and clothes leading up to the celebration at the end of the fasting month of Ramadan. Inflation during this period usually accelerates between 1.5 percentage points and 1.7 percentage points, Abdullah said.