Inflation up in November, hope for lower rates dashed
Tantri Yuliandini, The Jakarta Post, Jakarta
Inflation, as measured by the consumer price index (CPI), rose 1.71 percent in November above the previous month's level, as prices crept higher with the start of the Muslim fasting month of Ramadhan.
The Central Bureau of Statistics (BPS) reported on Friday that year-on-year inflation in November increased to 12.91 percent.
Analysts said that, with the year-end festivities looming, inflation would be even higher in December, meaning full-year inflation would surpass the government's 9-11 percent target.
The high inflation will force Bank Indonesia to maintain its tight monetary policy despite calls for a lower interest rate to reinvigorate the cash-strapped business sector.
BPS deputy Kusmadi Saleh said that November inflation was the result of a 1.19 percent increase in the prices of unprocessed food; a 0.24 percent increase in housing costs; processed foods, beverages, cigarettes and tobacco rose 0.14 percent; clothing 0.10 percent, healthcare 0.02 percent; education, recreation and sports 0.01 percent; and transportation and communications 0.01 percent.
BPS said that the cumulative inflation between January and November was recorded at 10.76 percent.
Fauzi Ichsan, an economist at Standard Chartered Bank, said that the high inflation level was likely to continue in December at 2.5 percent month-on-month -- even higher than the peak inflation level of 2.12 percent in July.
"In our estimation, full year inflation may reach 13 percent," Fauzi told The Jakarta Post.
The central bank has been maintaining a high interest rate policy amid inflation concerns. To date, Bank Indonesia maintains its benchmark interest rate at about 17.60 percent, far higher than the government assumption of 15 percent.
Keeping interest rates high helps prevent the rupiah being used for speculation, while at the same time eases pressure on inflation.
A tight money policy, however, comes at the expense of local industries being forced to scramble for access to cheaper funds.
It also adds to constraints on the state budget, as a large proportion of government bonds carry rates tied to the central bank interest rates.
BPS also reported that exports increased by 3.44 percent to US$4.47 billion in October compared to $4.32 billion in September, driven by higher non-oil and gas exports including mining products and low-end manufacturing products.
However, BPS said that cumulative exports from January to October declined by 6.84 percent to $48.12 billion compared with the same period last year.
Although the United States remains the country's biggest export destination, exports to the U.S. dropped 5.6 percent to $576.4 million in October.
Fauzi said that the drop was caused by the after-effects of the Sept. 11 attacks on the U.S., adding that Indonesia could expect a further slump as the rest of the world gets dragged into the recession.
"We have projected exports to decline to $57 billion next year from total exports of $58.9 billion expected this year," he said.
However, the export of low-end products may save the country from an even harsher slump with people expected to turn to cheaper alternatives, he said.
BPS said that imports in October were down 6.20 percent to $2.01 billion from $2.14 billion in September, but were 0.31 percent higher between January and October, reaching $26.69 billion, compared with the same period last year.
The trade surplus in October was at $2.46 billion compared to $2.18 billion in September.
The import of capital goods increased by 8.31 percent to $3.98 billion between January and October this year compared with the same period last year, the BPS reported.
The import of consumption goods, however, fell by 11.51 percent to $1.97 billion between January and October this year.