Inflation up 0.55%, higher rate forecast

Inflation up 0.55%, higher rate forecast

The Jakarta Post, Jakarta

Prices in October rose by 0.55 percent from the previous
month, bringing the inflation rate during the first ten months of
the year to a modest 3.05 percent, the Central Statistics Agency
(BPS) reported on Monday.

"The (inflation) rise probably had a lot to do with the rise
in all basic food prices, mostly due to higher demand ahead of
the fasting month of Ramadhan," BPS deputy chairman Slamet Mukeno
told a press briefing.

The commodities and services which contributed to the
inflation included basic food (1.78 percent); processed food,
beverage and cigarettes (0.03 percent); housing (0.30 percent);
clothing (0.25 percent); healthcare products and services (0.30
percent); education, recreation and sports (0.13 percent); and
transportation and communications (0.03 percent).

Slamet added that it was very likely that inflation in the
coming two months would increase significantly because of
religious festivities such as Idul Fitri and Christmas Day.

"In the previous years, the monthly inflation during those two
periods were above 1 percent," he said. However, Slamet remained
optimistic that the rise would not come at a level that could
jeopardize the government's full-year inflation target of between
6 percent to 7 percent.

On-year inflation -- as measured by the consumer price index
(CPI) -- rose by 6.22 percent in October this year as against
6.20 percent in the same month last year, BPS added.

After posting double digit inflation numbers last year,
Indonesia has been enjoying a relatively modest rate of inflation
thanks in part to a stable rupiah, which has helped prices of
imported consumer goods remain stable as well.

The slight inflation increase should do little damage to the
people's purchasing power, which bodes well for efforts to
maintain a strong domestic consumption, the country's main
economic growth engine.

The mild inflation should also pave the way for Bank Indonesia
to further slash its benchmark interest rate and eventually push
banks to extend cheaper loans to the corporate sector.

At its latest weekly auction, the central bank cut its
benchmark interest rate to 8.48 percent from 8.53 percent in the
previous week.

Despite already being the lowest since the 1997-1998 Asian
financial crisis, economists expect Bank Indonesia to guide rates
further downward by late December.