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.