Inflation rate expected to slow: BPS
JAKARTA (JP): For most Indonesians, life is still difficult with the price of most goods and services soaring, as mirrored by the increasing inflation rate in the first seven months of this year.
Inflation, as measured by the consumer price index (CPI), was up 2.12 percent in July from the previous month's level, sending year-on-year inflation to 13.04 percent, the Central Bureau of Statistics (BPS) reported on Wednesday.
Nevertheless, people can expect a slower pace of price increases in the second half of this year, due to improving market confidence with the induction of the new government under President Megawati Soekarnoputri.
The rupiah's exchange rate to the U.S. dollar has strengthened drastically from over Rp 11,000 in mid-July to Rp 9,600 on Wednesday. Much of the increase was recorded after Megawati was elected President on July 23.
The strengthening rupiah and the diminishing impact of the recent fuel price hike will reduce inflationary pressure over the next several months, bureau deputy head Kusmadi Saleh said.
However, because of the relatively high inflation rate in the first half of this year, it will be difficult to achieve the 9.3 percent inflation rate targeted in the state budget.
"Chances are slim for inflation to hit below 10 percent, and it most probably will be between 10 and 13 percent," he said.
Senior economist at PT Danareksa Securities Raden Pardede has forecasted annual inflation to be in the range of 10.5 percent to 11 percent.
"To achieve an average of 9.3 percent (for 2001), inflation for the rest of the year will have to be less than 8 percent and I don't think that is possible," he told The Jakarta Post.
Year-on-year inflation has been in the double-digit range over the past several months due to a sharp drop in the value of the rupiah to the U.S. dollar, which has pushed up prices for local producers heavily dependent on imported raw material.
Bureau chief Soedarti Surbakti noted that higher inflation was largely caused by an increase in the price of goods and services as a result of the 30 percent hike in fuel prices in June of this year.
BPS said that transportation and communications costs increased by 6.83 percent, followed by recreation and sports by 2.34 percent, processed food, beverages, cigarettes and tobacco 1.96 percent, housing 1.65 percent, unprocessed food 1.65 percent, health care 1.05 percent and clothing by 0.06 percent.
Raden said that the prospect of weakening inflationary pressure ahead might prompt Bank Indonesia to lessen its tight money policy and lower the interest rate of its one-month SBI promissory notes to between 15 percent and 16 percent.
The benchmark interest rate currently stands at 17.15 percent, a level which bankers and businessmen say is too high.
"The government's (SBI rate) target may not be reached this year, but the most important thing is that we are heading toward improvement, and that's good enough," Raden said.
Analysts said a gradual cut in the interest rate would not adversely affect the rupiah as it would be supported by slowing inflation.
Meanwhile, the rupiah ended lower on Wednesday on concern that Megawati had not named the members of her Cabinet yet since she assumed the presidency last week.
The local currency closed at Rp 9,600 to the dollar compared to Rp 9,525 on Tuesday.
Dealers, however, said that the slight decline in the rupiah was not affected by the inflation report, adding that the market had anticipated it.
The rupiah's close on Wednesday, however, represents a sharp increase from its level prior to Megawati's ascension to the presidency, when the local currency was trading at about Rp 11,000 to the greenback.
The rupiah's rise is higher against the major non-dollar currencies, such as the Japanese yen and the euro, as the dollar has gained strength against both the yen and the euro. (tnt)