BPS says inflation on a declining trend
Dadan Wijaksana, The Jakarta Post,Jakarta
The Central Bureau of Statistics (BPS) reported on Monday that inflation in May was up 0.8 percent from the previous month's level, but year-on-year inflation showed a declining trend.
BPS said year-on-year inflation during the month fell to 12.9 percent.
The year-on-year inflation rate in February stood at 15.3 percent, but it fell in March and April to 14.8 percent and 13.3 percent, respectively.
BPS said a rise in public transportation fares was the cause for the rise in the price of some basic commodities in May.
The declining trend in the annual inflation rate will give Bank Indonesia more room to allow its benchmark interest rate to fall even further.
An economist at Standard Chartered Bank, Fauzi Ichsan, said the declining trend of year-on-year inflation should be credited to the impressive showing of the rupiah against the US dollar.
"This (declining) trend will continue in line with the strengthening of the rupiah, but overall I'd say inflation for the entire year will stand at 11 percent," he told The Jakarta Post.
He added that it was also the rupiah's recent run that had caused a relatively low inflation rate of 4.08 percent from January to May.
Since the start of the year, the rupiah has been gaining ground against the greenback. To date, the rupiah has appreciated close to 20 percent.
The rupiah closed on Monday at a new nine-month high, riding the continued regional bearishness on the dollar and a lack of bad news in the domestic economy.
The rupiah closed at Rp 8,540 against the dollar on Monday, up from Rp 8,700 at Friday's close.
A relatively manageable inflation rate and the steady climb of the rupiah, Fauzi said, would eventually give Bank Indonesia more room to continue lowering its benchmark interest rate.
At its last auction, the interest rate of Bank Indonesia one- month SBI promissory note fell to 15.51 percent, far below the figures at the end of last year, which stood at about 18 percent.
A lower interest rate would ease the burden on the state budget in covering the interest rate of government recapitalization bonds issued to bail out ailing banks.
It would also help the corporate sector obtain bank loans at affordable rates.
Asked whether the government could meet its target of single- digit inflation this year, Fauzi did not rule out the possibility, on the assumption that the rupiah could strengthen to below the 8,000 level.
A stronger rupiah would make imports cheaper, thus lowering the cost of production at home. Indonesia's production system is still heavily dependent on imported raw materials.
Elsewhere, BPS reported the trade surplus was higher in April, at US$2.34 billion.
BPS said exports in April stood at $4.77 billion compared to $4.54 billion in March. Imports increased to $2.43 billion from $2.32 billion.