Increased prices raise concerns of hike in interest
Increased prices raise concerns of hike in interest
Dadan Wijaksana, Jakarta
The Central Statistics Agency (BPS) reported on Monday that the
prices of imported foods and housing rent edged up in July, and
coupled with higher education costs, helped to push inflation up
by 0.39 percent from the previous month.
"The decline in rupiah contributed in part to the inflation in
July, as it pushed up prices of imported foods, although the
higher education costs was more attributable to the new school
year," BPS chairman Choiril Maksum said while presenting the
agency's monthly reports on inflation and trade figures.
The rupiah has suffered from various external and internal
shocks throughout the year, falling from Rp 8,400 to the dollar
at the start of the year to around Rp 9,150 in July. The currency
stands among the worst in Asia.
Aside from causing a direct impact on the price of imported
goods, the shaky rupiah also affected production costs, as many
companies remain dependent on imported raw materials.
Other factors in the consumer price index (CPI) that also
contributed to the overall inflation were: processed foods,
beverages and tobacco at 0.04 percent; clothing at 0.01 percent
and health care at 0.01 percent.
The BPS also said July's annualized inflation stood at 7.2
percent, compared to 6.83 in June, creating worries that the
government's full-year target of 6.5 percent would not be met,
particularly due to soaring oil prices and the rupiah's
volatility.
As of July, cumulative inflation stands at 3.39 percent.
Stronger inflationary pressure could force the central bank to
start raising interest rates, especially as the U.S. is also
increasing its rates.
Bank Indonesia, however, which has been keeping the rate
relatively low, said it was unlikely to follow the U.S.' move,
because raising domestic rates would make lending more expensive
and thus, hurt the prospects of economic growth.
On the other hand, a mild inflation would help maintain the
people's purchasing power, which is vital in keeping domestic
consumption robust. Domestic consumption has been the main engine
of economic growth for the past few years.