Inflation in May increased by 0.21 percent

The Jakarta Post, Jakarta

The Central Statistics Agency (BPS) said on Monday that inflation in May rose by 0.21 percent from the previous month, due to an increase in the prices of goods and services.

BPS said that last May, the inflation rate stood at 6.91 percent, lower than the annual rate of 7.4 percent posted in April 2003. The agency said that the annual inflation rate in May was the lowest so far this year.

BPS said that the prices of processed foods, beverages, cigarettes and tobacco increased by 0.01 percent; housing costs by 0.76 percent; clothing by 0.35 percent; health costs by 0.81 percent; and transportation and communications costs by 0.03 percent.

Meanwhile, BPS said that the price of fresh produce and meats were down by 0.28 percent.

Inflation has largely been under control so far, thanks to a stronger exchange rate of the rupiah against the U.S. dollar, which makes imported goods cheaper.

The higher monthly inflation rate in May should not pose a threat to the government's annual target, as the appreciation of the rupiah should keep prices relatively stable.

Bank Indonesia Governor Burhanuddin Abdullah said on Monday that the central bank was targeting an inflation rate of 8.8 percent for this year because of the stronger rupiah.

The relatively low inflation environment has allowed the central bank to continue to reduce its benchmark interest rate. The interest rate on one-month Bank Indonesia SBI promissory notes is now hovering at 10.40 percent, compared to around 17 percent earlier last year.

The lower SBI rate should help ease the burden of the government in servicing its huge domestic debt. However, the lower rate has so far failed to push banks to lend more money to the corporate sector, which is vital for stimulating economic growth.