Indef predicts higher inflation, slower growth

The Jakarta Post, Jakarta

The increases in the prices of fuel products, electricity and telephone charges will boost inflation to around 11.8 percent this year, and slow economic growth to 3.1 percent, according to the Institute for Development of Economics and Finance (Indef), a Jakarta-based private think-tank.

Indef economist Iman Sugema said on Tuesday that the simultaneous price increases would drive up prices of goods and services much higher than initially projected.

He was quoted by detik.com as saying that the think-tank initially projected this year's inflation to reach 9.7 percent, compared to the government's target of 9 percent.

Indef has been a strong critic of the utility price hikes policy, launched earlier this month in a bid to cut expensive government subsidies and help troubled state-owned utilities. The think-tank said the timing of the policy was not appropriate considering the weak economic condition of the people.

The much higher inflation would cut into the purchasing power of the people and put a brake on domestic consumption, which has been the main driver of economic growth during the past couple of years.

Indef said the utility price hikes would have a negative impact on economic growth this year.

It previously forecast growth to reach 3.4 percent, but had revised the forecast down to between 2.8 percent and 3.1 percent.

The government initially projected growth this year to reach 5 percent, but after the Oct. 12 Bali bombings had cut the forecast to 4 percent.

Indef said the stronger inflation and slower economic growth would hamper efforts to reduce the number of poor in the country of more than 210 million people.

The number of poor in 2002, according to official figures, is 17 percent. The government aims to reduce it to 15 percent this year.

But Indef said the greater economic hardships caused by the price rises would only lower the number of poor people to about 16.4 percent this year.

Meanwhile, another Indef economist, Aviliani, said stronger inflation would limit room for the central bank to further reduce its benchmark interest rate to below 13 percent.

She said this would mean lending rates remained expensive for the real sector.