Tue, 02 Dec 2003

Inflation in November up 1.01%, but still on track for year

Rendi A. Witular, The Jakarta Post, Jakarta

Consumer price index rose in November by 1.01 percent from the previous month, bringing the cumulative inflation in the first 11 months to 4.08 percent, strengthening hopes that full-year inflation will be lower than the initial government forecast of 6 percent to 7 percent.

Chairperson of the Central Statistics Agency (BPS) Sudarti Soerbakti said that although the November inflation rate was quite high, the bureau was optimistic that full-year inflation would be below 6 percent.

"We forecast that full-year inflation will be below 6 percent because, based on our previous data, inflation in December is usually lower compared to other months," she said in a press briefing on Monday.

Sudarti explained that after spending heavily ahead of the Islamic Idul Fitri holiday, which fell on Nov. 25 and Nov. 26, people generally restrain from making a lot of purchases in December.

"The (inflation) rise in November has a lot to do with the rise in all basic food prices and clothing, mostly due to higher demand during the fasting month of Ramadhan and Idul Fitri," she said.

Even if prices are on the rise ahead of Christmas and New Year festivals, they would not increase to such an extent that annual inflation will top the government's full-year inflation target of between 6 percent to 7 percent, she said.

Based on the BPS report, the commodities and services which contributed to inflation in November included basic food, with an increase in prices of 2.24 percent in the month; clothing, 2.29 percent; transportation and communications, 1.06 percent; housing, 0.42 percent; processed food, beverages and cigarettes, 0.32 percent; health care products and services, 0.16 percent; and education, recreation and sports, 0.03 percent.

On-year inflation rose by 5.33 percent in November as against 10.48 percent in the same month last year, BPS added.

A mild inflation would do little damage to people's purchasing power, which bodes well for efforts to maintain strong domestic consumption, the country's main economic growth engine.

After posting double digit inflation figures last year, Indonesia has been enjoying a relatively modest rate of inflation thanks in part to a stable rupiah, which has helped prices of imported consumer goods remain stable as well.

The mild inflation should also pave the way for Bank Indonesia to further slash its benchmark interest rate and eventually push banks to extend cheaper loans to the corporate sector.