Inflation remains in check, August rate at 0.84%
Inflation remains in check, August rate at 0.84%
The Jakarta Post, Jakarta
Inflation, as measured by the consumer price index (CPI), rose
in August by 0.84 percent, bringing the rate for the first eight
months of the year to 2.11 percent, the Central Statistics Agency
(BPS) said on Monday.
BPS chairwoman Sudarti Soerbakti attributed the slight rise in
inflation to the marginal increase in the prices of most basic
commodities and services during the month.
The prices of food commodities rose by 0.15 percent in August,
while the prices of housing, clothing and health care grew by
0.61 percent, 0.28 percent and 0.23 percent, respectively. Prices
in the transportation and telecommunications sectors increased by
0.09 percent.
The education, recreation and sports sector recorded the
largest price increase of 7.82 percent in August, largely the
result of a rise in demand for education-related products ahead
of the new school year.
Despite the increase, however, Indonesia is still keeping
inflation in check.
The 2.11 percent inflation posted as of August is below the
government's full-year target of 9 percent, as stated on the 2003
state budget.
Bank Indonesia has predicted inflation will reach 6 percent at
the highest by the end of the year.
Theoretically, low inflation will strengthen the public's
purchasing power. This will in turn boost domestic consumption,
which has been the main driver of the country's economic growth
over the past three years.
Also, a relatively mild inflation rate would pave the way for
Bank Indonesia to continue cutting its benchmark interest rate,
which is already at a historic low. This would push banks to
lower their lending rates.
The interest rate on Bank Indonesia's one-month SBI promissory
note currently stands at 8.91 percent, compared to about 13
percent early this year. Many analysts have said the SBI rate
could fall even further.
With year-on-year inflation at just 6.38 percent in August,
optimisms is high that Bank Indonesia will continue to cut its
benchmark rate.
A low SBI rate is seen as beneficial for the economy. Not only
will it save trillions of rupiah of state funds the government
has to pay in servicing its domestic debts, it also will force
banks to lower the interest rates of commercial lendings for the
private sector.
According to one estimate, a 1 percent decline in the SBI rate
could save up to Rp 2 trillion allocated to pay the interest of
recapitalization bonds the government issued in the aftermath of
the economic crisis. Most of the recap bonds' interest rates are
tied to the movement of the SBI rate.
While predicting strong inflationary pressure in the period
leading up to the end of the year, the BPS remains optimistic the
inflation rate for the year will not exceed single digits.
Prices normally go up at the end of the year due to a rise in
demand for goods for religious celebrations.
Inflation Rates
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2001 2002 2003
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1. August (on-month) -0.21% 0.29% 0.84%
2. January-August 7.48% 5.61% 2.11%
3. August (on-year) 12.23% 10.60% 6.38%
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Source: BPS