Inflation rate slowed to 7.4% in May: BPS

Urip Hudiono, The Jakarta Post, Jakarta

The country's inflation rate slowed for the second consecutive month in May, after reaching a two-year high in March following the government's decision to increase fuel prices, according to data from the Central Statistics Agency (BPS).

Reporting on Wednesday the latest statistics from the country's consumer price index (CPI), the agency said the prices of goods and services in the country increased by 0.21 percent in May from their previous level in April. On a year-on-year basis, prices rose by 7.4 percent.

These figures seem to indicate inflation is back on the leash, after running loose in March after the government raised domestic fuel prices by an average of 29 percent to cut the fuel subsidy and ease the burden on the state budget.

Inflation slowed to a monthly rate of 0.34 percent and an on- year rate of 8.12 percent in April, as compared to a whopping 1.99 percent monthly level and 8.81 percent on-year level in March.

The government has set an inflation target of 7 percent for this year, revising it up from a previous 5.5 percent estimate in the 2005 state budget.

During its ongoing talks on the revision with the House of Representatives' budget commission, however, the government is likely to change the inflation target again in accordance with recent developments.

Bank Indonesia thinks it is likely inflation will reach 8 percent by the end of the year, while the Regional Representatives Council has recommended the government set its inflation target at 9 percent.

BPS head Choiril Maksum said May's inflation rate was mainly driven by a 0.59 percent increase in health costs, followed by a 0.36 percent rise in household expenditures.

The higher health costs accounted for 0.02 percent of the inflation rate in May, while household expenditures contributed 0.11 percent to inflation.

Health costs rose in particular on higher costs for health care services, Choiril said, while people were paying more for rent as part of their household expenditures.

The prices of processed food increased by 0.23 percent and contributed 0.04 percent to the inflation rate in May, while staple food prices went up 0.13 percent in May after falling by 0.21 percent in April.

"The prices of staple foods increased again because the harvest has passed," Choiril said, mentioning several areas in West Java where the price of rice had started to rise.

Transportation costs, among the areas hardest hit by the fuel price increase in March, increased by a mere 0.04 percent in May, from a 0.62 percent rise in April and a 15.44 percent surge in March.

"As we can see, the inflationary effect of the fuel price hike has passed," Choiril said.

Most analysts expect the year-end holidays, particularly Idul Fitri, Christmas and New Year's, to again push prices up.