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.