Inflation increases slightly in January

Dadan Wijaksana, The Jakarta Post, Jakarta

The Central Bureau of Statistics (BPS) announced on Monday that inflation in January rose by 0.8 percent from the previous month, lower than many had anticipated.

BPS chairwoman Soedarti Surbakti said the lower than expected increase was partly due to a delay in utility price hikes.

She added that most prices had peaked in December, during the year-end holiday season.

"Before the move (delay in utility price hikes) prices had a strong tendency to go up, but they gradually came down toward the end of the month," Soedarti said during a press conference.

A manageable inflation rate would provide the central bank more leeway to continue lowering its benchmark interest rate, which would help reduce the burden on the state budget to service the bonds it issued to bailout the local banking system during the crisis. A lower interest rate environment should also encourage more bank lending to the business sector.

Early in January, the government announced almost simultaneous increases in electricity and telephone rates, and fuel prices, as part of what is said was its commitment to gradually reduce costly subsidies and help ailing state utilities.

The increases sparked nationwide protests and several weeks later the government announced it was delaying the increases.

Before the delay, analysts had been forecasting inflation of between 1 percent and 2 percent for January, which would have posed a serious threat to the government's single digit inflation target for the entire year.

BPS said year-on-year inflation in January was 8.74 percent. The 2003 state budget targets a 9 percent full-year inflation.

Soedarti also said the lower-than-expected inflation during the month was helped because the price of staple goods and services had peaked in December during the holidays.

"Each year, prices traditionally go down after reaching such a peak. This can be seen in the price of basic foods, which fell by 1.5 percent during the period, compared with the month before," Soedarti said.

Consequently, the 0.8 percent increase in January's inflation, as measured by the price consumer index (CPI), was mainly driven by a 2.3 percent increase in housing costs, a 1.95 percent rise in the price of processed foods, beverages and cigarettes, and a 1.1 percent rise in transportation and telecommunications costs.

BPS also said clothing prices were up 0.96 percent and health care costs were 1.05 percent higher, compared to the previous month.

A relatively steady rupiah against the U.S. dollar coupled with a good harvest also helped moderate price pressure in January.