Inflation eases again in June

Inflation eases again in June

The Jakarta Post, Jakarta

Inflation slowed again in June thanks largely to a stronger
rupiah and falling food prices, the Central Bureau of Statistics
(BPS) reported on Monday.

BPS said year-on-year inflation in June was 11.48 percent,
lower than the 12.93 percent in May. The annual inflation rate
has been declining since February.

Monthly inflation for June was also lower at 0.36 percent,
compared to 0.8 percent in May.

BPS said the stronger rupiah offset fuel price increases. The
rupiah continued to make gains against dollar, strengthening by 1
percent in June.

This resulted in a 0.28 percent drop in basic food prices
during the month, a reversal from the 0.6 percent rise in May.

Since the start of the year, the rupiah has strengthened by
almost 20 percent against the dollar.

On Monday, the local currency was unchanged from Friday's
close of Rp 8,715 per dollar.

The figures from June showed that the government is on track
to achieve its target of single-digit inflation for the year.

Analysts have said that a manageable inflation rate would
provide more leeway for Bank Indonesia to continue lowering its
benchmark interest rate.

This is seen as advantageous because a lower interest rate
means the government will have to allocate less funds to finance
interest payments on its huge domestic debts.

No less than Rp 430 trillion (about US$50 billion) worth of
recapitalization bonds are currently held by local banks, with
the government covering the interest payments on these bonds,
most of which move in accordance with the movement of Bank
Indonesia's interest rate.

At the last weekly auction, the benchmark weighted average
rate of Bank Indonesia's one-month promissory note dropped
slightly to 15.11 percent from 15.14 percent the previous week.

With the moderate inflation in June, it is expected that the
central bank will continue to press its one-month rate even
lower, bringing it close to 14 percent by the end of the year at
the latest, as was targeted in the state budget.

In comparison, Bank Indonesia's one-month rate was hovering
above 17 percent at the end of last year.

Lower interest rates would also allow consumers to obtain bank
loans at more affordable rates.

Elsewhere, BPS said education and recreation costs fell 0.16
percent on month in June, and clothing prices edged down 0.24
percent.

However, the price of processed foods, beverages and
cigarettes rose 0.01 percent on month, housing costs were up 0.96
percent, health care costs gained 0.42 percent and transportation
and communications costs rose 2.09 percent.