Inflation dropped again to minus 1.05 percent in July

Inflation dropped again to minus 1.05 percent in July

JAKARTA (JP): Inflation in July dropped to minus 1.05 percent,
the fifth deflation five months in a row, according to the
Central Bureau of Statistics (BPS).

BPS chief Sugito Suwito said on Monday on a year-on-year basis
inflation fell to 13.49 percent in July from 24.5 percent in
June.

"Prices of various food materials including rice, red pepper,
red onions, vegetables and spices dropped compared to the level
in June," he told a press conference.

"The data announced by BPS is completely objective without any
engineering or intention to please certain parties," he asserted.

BPS reported that prices of food commodities dropped 3.46
percent in July from June, particularly prices of spices, which
fell by 17.04 percent, and rice, which declined by 0.22 percent.

Prices of processed foods, beverages, cigarettes and tobacco
declined by 0.13 percent, it said.

BPS also said that the price of clothing fell by 1.59 percent,
and prices of telecommunications and transportation services were
down by 0.17 percent.

It said that product prices in the housing subsector increased
by 0.44 percent, while the education and sport subsector rose by
0.5 percent and the health subsector by 0.58 percent.

Sugito said that inflation for the first seven months in 1999
was 1.66 percent, while inflation for the first four months in
the current fiscal year ending March 2000 was minus 2.33 percent.

Indonesia suffered hyperinflation of more than 77 percent last
year when the economic crisis heightened.

The government expects inflation this year to fall below six
percent.

Analysts earlier expected that inflation in July would be
negative again but the figure released by BPS was still
surprising.

"This is surprising," said Budi Hikmat, an economist at PT
Bahana Securities.

He said that in addition to favorable seasonal factors which
increased the supply of food commodities, prices were generally
down also because of a weaker purchasing power.

"This can be seen by a drop from August 1998 to July in M1
money supply in July by 22.3 percent," he said, adding that M1 is
an indicator of purchasing power.

Budi also said that deflation for five months in a row was an
indication of a weakening economy.

"The government has to be brave and say that the economy is
weakening," he said.

Budi said that the weakening in purchasing power and economic
growth was primarily because the banking sector had yet to resume
lending to the real sector.

BPS also reported that trade surplus in June declined to
US$1.65 billion from $2.09 billion in May as both exports and
imports fell.

BPS said that exports in June dropped by 12.24 percent to
$3.60 billion from $4.06 billion in May.

Sugito attributed the decline in exports to an inconsistency
in government export policies, a weak real sector and the
economic condition in Japan, the country's primary export market.

BPS said that exports in the first semester of this year fell
by 11.81 percent to $24.57 billion from $21.69 billion in the
same period in 1998.

"The decline is particularly caused by a drop in non-oil and
gas exports," BPS said.

BPS said that non-oil and gas exports in June was $3.01
billion, a 10.70 percent fall from the level in May, while non-
oil and gas exports in the first semester of 1999 fell by 12.63
percent compared to the same period last year.

Imports in June fell by 2.79 percent to $1.91 billion from
$1.96 billion in May, due, in particular, to a decline in non-oil
and gas imports, BPS said.

"The rupiah's appreciation in the middle of June has not
directly affected the import of non-oil and gas products," BPS
said.

It reported that imports in the first semester of the year was
down by 13.20 percent to $11.55 billion compared to the same
period in 1998.

But it said that imports of consumption goods from January to
May increased 65.15 percent to $928 million compared to the same
period last year.

Imports of raw materials in the same period, however, declined
by 9.96 percent, while imports of capital goods dropped by 43.33
percent. (rei)