Inflation may be higher than expected: BI

The Jakarta Post, Jakarta

Inflation this year may be higher than expected due to the current surge in oil prices, Bank Indonesia Governor Burhanuddin Abdullah warned on Monday.

The rocketing price of oil would drive transportation and delivery expenses up, requiring extra expenditure for businesses, which in turn would push the prices of imported goods up.

"The rise in oil prices will hurt imported goods and also have an impact on inflation," Burhanuddin said.

"We are going to closely monitor external developments -- those which will have an impact on our stability."

Oil prices fell early on Monday from record peaks last Friday, AFP reported. The price of reference light, sweet crude for November delivery fell 36 U.S. cents to $52.95 a barrel in electronic trading on the New York Mercantile Exchange.

It had touched a peak of $53.40 dollars last Friday, a record in the contract's 21-year history, largely as a result of fears of interrupted supplies from Nigeria.

In London, Brent North Sea crude oil for delivery in November lost 23 U.S. cents to $49.48 a barrel in opening deals, having hit an all-time summit of $49.75 also on Friday.

In addition to the impact of the oil hike, a weak rupiah would also increase pressure on inflation as it would make the cost of imported goods more expensive.

The local unit has declined by some 7 percent against the dollar since the start of the year, although Bank Indonesia was upbeat it could strengthen to below 9,000 per dollar by the end of the year.

It was the threat of inflationary pressure that has forced the government and the House of Representatives to revise upward full-year inflation from 6.5 to 7 percent -- as stated in the revised 2004 state budget.

Year-on-year inflation slowed in September at 6.3 percent as compared with 6.7 percent in August. In July, it rose 7.2 percent, the fastest in 15 months, according to Bloomberg data, on the back of rising food and fuel costs.

Rising inflationary pressure increases the pressure on the central bank to raise its benchmark promissory notes (SBI) interest rate, a move that could well hamper economic growth, as banks loans for economic activities become less affordable.

In its last auction, the central bank slightly upped the SBI rate to 7.40 percent from 7.39 percent.

The country would need robust lending, both for businesses operations and consumers, to help achieve the growth target of 4.8 percent this year, the highest rate since the crisis.

Inflation during the January-September period stands at 3.8 percent, said the Central Bureau of Statistics (BPS).