CPI up amid strong demand for chickens

The Jakarta Post, Jakarta

Inflation, measured by the Consumer Price Index (CPI), rose by 0.57 percent in January compared to the previous month due to higher prices of basic food commodities including chicken and eggs, the Central Statistics Agency (BPS) reported on Tuesday.

BPS chief Sudarti Surbakti told a press conference that the bird flu outbreak had not affected demand for chicken or eggs during the month.

The government only confirmed the outbreak on Jan. 25 although signs of the potentially deadly disease had occurred months earlier.

BPS said that basic food price index increased by 1.42 percent in January from the previous month.

Other prices that also increased include processed food and cigarettes, 0.36 percent; clothing, 0.47 percent; housing, 0.42 percent; education, 0.06 percent; transportation and communications, 0.64 percent, the agency said.

The Chinese New Year celebration in January may have contributed to the rising prices of basic commodities, it said.

But on an annual basis, inflation measured by the Consumer Price Index slowed at 4.82 percent in January compared to the same month last year. The annual inflation rate in December was 5.06 percent.

The country has seen a relatively weak inflationary environment during the past year, thanks largely to a stronger rupiah against the U.S. dollar (which makes imported raw materials cheaper).

This has allowed Bank Indonesia to continue cutting down its benchmark interest rate, in the hope of triggering banks to also cut their lending rates, thus making bank loans more affordable to the corporate sector. The central bank's benchmark interest rate is currently hovering at an all-time low of 7.86 percent, compared to more than 13 percent at the beginning of last year.

The government has projected inflation this year to reach 6.5 percent.

The government has received praise from international donors like the World Bank and the International Monetary Fund for successfully curbing inflation, following a hyper inflation problem in the wake of the late 1990s financial crisis. The benign inflation is a major component of the country's current stable macroeconomic condition (which also includes a stronger rupiah and low interest rate environment).

Equally important, the benign inflation would also help maintain people's purchasing power, which bodes well for efforts to preserve strong domestic consumption, the country's main economic growth engine.

However, with the 2004 general election already around the corner, many have raised doubts the trend would continue as trillions of rupiah will be used by political parties trying to garner as many votes as possible.

This would put pressure on inflation on the supply side as there would a significant increase in money in circulation.

Elsewhere, BPS also said that it has used a modified method in its calculations to measure inflation as of January. It has used 2002, instead of the usual 1996, as the base year in its inflation calculation.

BPS argued that the change would enable it to find more accurate data as the current method reflects the fast-changing socio-economic conditions.

The new report covers data surveys on 744 goods and services as compared with 600 previously, while boosting the number of cities in the surveys from 43 to 45.

eye box ------------------------------------------------- Inflation 2002 2003 2004 -------------------------------------------------- 1. January (on-month) 1.99% 0.80% 0.57% 3. January (on-year) 14.42% 8.74% 4.82% -------------------------------------------------- Source: BPS