Inflation up 10.6%

The Jakarta Post, Jakarta

Inflation in August rose 10.6 percent compared to the same month last year, the Central Bureau of Statistics (BPS) reported on Monday.

The bureau revealed that month-on-month inflation in August rose by 0.29 percent from July.

The BPS said that inflation during the month was mainly caused by higher education costs linked to the start of the new school year.

"The prices of a range of goods and services generally increased in August," said bureau chief Soedarti Surbakti.

Education and recreation costs were up 2.54 percent month-on- month in August, the bureau said.

Soedarti expressed optimism that the government's single digit inflation target for this year could be achieved despite the relatively high year-on-year inflation in August.

Year-on-year inflation has been declining over the past several months, allowing the central bank to lower its benchmark interest rate, which in turn helps ease the burden on the state budget in covering the interest on government bank recapitalization bonds.

A lower interest rate environment is also crucial for spurring economic growth.

Fauzi Ichsan, an economist at Standard Chartered Bank, said Bank Indonesia would continue to lower its benchmark interest rate toward the 14-percent level as the rate of month-on-month inflation in August continued to decline.

But he said that the government's single digit inflation target for this year would only be achieved if the exchange rate of the rupiah against the U.S. dollar strengthened to around Rp 8.500 per dollar. The local unit is currently hovering at around Rp 8,840.

Elsewhere, the BPS said that in August clothing costs rose 0.18 percent from a month ago; healthcare costs 0.52 percent; processed food, drinks and cigarettes 0.15 percent; and housing 0.8 percent.

But food costs were down 0.53 percent on the month, and transportation and communications costs fell 0.09 percent.