Floods push inflation higher, BPS reveals

The Jakarta Post, Jakarta

Inflation in February increased 1.5 percent from the previous month due to a combination of severe flood problems and the continuing effect of fuel price increases in January, the Central Bureau of Statistics (BPS) reported on Friday.

BPS said that, compared to the same month last year, inflation was 15.13 percent.

Analysts said that the high inflation level in February only strengthened their earlier conviction that the government's single digit inflation target of 9 percent for this year would not be attainable.

Many experts have said that inflation this year is likely to be between 11 percent and 13 percent.

Economist Ferry Hartoyo of Vickers Ballas Securities said that, with the high inflationary pressure, it would be difficult for Bank Indonesia to maintain its current policy of easing interest rates.

Since the beginning of the year, the central bank has tried to reduce its benchmark interest from near 18 percent late last year to around 16.88 percent now.

The interest rate reduction is crucial to help ease the government's burden in covering the interest of bonds issued to bail out banks.

The bureau said that the recent floods, which hit several parts of the country, including Jakarta, early last month had disrupted the supply of basic goods and consumer products, jacking up prices.

BPS said that food prices, which have the highest weighting in the Consumer Price Index basket, rose 3.11 percent month-on- month, while prices of processed food and beverages increased 0.8 percent.

Housing costs rose 1.67 percent, clothing 0.34 percent, health care 0.59 percent, education and recreation 0.40 percent, transportation and communications costs were up 1.16 percent.

BPS said that the increase in fuel prices by an average of 22 percent continued to push prices of goods and services higher in February.

Elsewhere, BPS said that exports in January grew slightly to US$4 billion from $3.99 billion in December, while imports fell to $1.89 billion from $2 billion.

Analysts said that, although the trade surplus in January was higher at $2.11 billion compared to $1.99 billion at the end of last year, the outlook for the overall trade picture remained grim amid uncertainty in the global economy, particularly the U.S., one of Indonesia's main export destinations.

The government has said that this year's economic growth target of 4 percent would continue to be driven by domestic consumption amid expected weak exports and low investment.

Some, however, are hopeful that the U.S. economy will recover in the second half of this year, which will benefit Indonesia's exports.

The country's exports are mainly commodities and low-end manufacturing goods, which have been less affected by the current global downturn than exports from other countries in the region, which are dominated by high-tech goods.