Full-year inflation better than expected: Statistic Agency

Dadan Wijaksana, The Jakarta Post, Jakarta

Inflation rose by 0.94 percent in December from the previous month, bringing the total inflation in 2003 to 5.06 percent, the lowest year-on-year rate in four years, the Central Statistics Agency (BPS) reported on Friday.

December's inflation was mainly driven by the hike in prices of basic foodstuffs as well as processed food and beverages, mostly because of the Christmas and New Year festivities, BPS deputy chairman Slamet Mukeno said.

On a monthly basis, basic food prices increased by 2.13 percent, while the prices of processed food and beverages also experienced a rise of 1.02 percent.

Other commodities also on the rise in the month were housing (0.28 percent); clothing (1.67 percent); health care (0.35 percent); education, recreation and sports (0.04 percent); and transportation and communications (0.03 percent), the report said.

In comparison, inflation in November -- as measured by the consumer price index (CPI) -- rose by 1.01 and 5.33 percent on month-on-month and year-on-year basis, respectively.

The rise in December's inflation did not affect the overall relatively low inflation rate throughout the year.

In fact, the full-year inflation of 5.06 percent was better than the government's target of 6 percent to 7 percent -- quite an achievement given that the country had recorded double digit inflation rates in the past three years.

The government has earned praise from international donor agencies like the World Bank and the International Monetary Fund (IMF) for maintaining a sound macroeconomic performance including a controllable inflation.

Some analysts have partly attributed the fairly modest inflation to the stronger rupiah, which helped stabilize the prices of imported consumer goods throughout last year. The local unit strengthened against the U.S. dollar by about 6 percent during the year.

Bank Indonesia's benchmark interest rate has been on a decline in the past two years. Earlier this week, the central bank cut the rate to 8.31 percent from the already all-time low of 8.41 percent the week before.

The benign inflation is considered good for the economy, as it would help maintain people's purchasing power, in turn maintaining strong domestic consumption, the country's main economic growth engine.

Moreover, the mild inflation should also encourage the central bank to further slash its benchmark interest rate and eventually push banks to lower their lending rates for the private sector.