Thu, 02 Oct 2003

Inflation remains in check

The Jakarta Post, Jakarta

Prices rose slightly by 0.36 percent in September, bringing the inflation rate during the first nine months of the year to a modest 2.48 percent, the Central Statistics Agency (BPS) reported on Wednesday.

BPS attributed the slight rise in inflation to a 0.52 percent decline in basic food prices, which helped offset a rise in prices of other commodities and services.

Prices of processed food, beverages and cigarettes increased by 0.34 percent; housing was up 1.03 percent; clothing 0.64 percent; health-care 0.63 percent; education, recreation and sports 1.62 percent; and transportation and communications went up by 0.05 percent.

Inflation in September this year compared to the same month last year increased by 6.20 percent, which is slightly lower than last month's annualized inflation rate of 6.38 percent.

The September inflation figure should help come close to the government's full-year inflation target of about 6 percent. BPS chairperson Sudarti Surbakti agreed to the target, saying that with the current level, full-year inflation would only reach between 6 percent to 7 percent.

The relatively benign inflation rate is one factor that improves purchasing power and helps maintain stronger domestic consumption, which is crucial as domestic consumption has been the main mover of the country's economic growth in the past years.

The relatively mild inflation should also pave the way for Bank Indonesia to further slash its benchmark interest rate -- already at an all-time low at the moment -- and eventually push banks to make loans more cheaper.

In its latest weekly auction, the central bank cut its benchmark interest rate to 8.56 percent from 8.66 percent previously.

Analysts have said that if full-year inflation could be contained at around 6 percent, the central bank could cut the interest rate on one-month SBI promissory notes to 8 percent by the end of the year.