July year-on-year inflation eases again

Dadan Wijaksana, The Jakarta Post, Jakarta

Prices continued to decline in July compared with the same month last year, the Central Bureau of Statistics (BPS) reported on Thursday, imparting greater confidence to the government's target of single-digit inflation by the end of the year.

BPS said that inflation, as measured by the consumer price index, slowed down to 10.05 percent from 11.48 percent in the same period last year.

Despite the declining year-on-year inflation figure, the bureau said that month-on-month inflation in July rose to 0.82 percent from 0.36 percent in June, driven mainly by higher education costs associated with the new school year. The price of other goods and services also increased during the period, which, analysts said, was linked to the weakening value of the rupiah against the U.S. dollar.

Annualized inflation has been on the decline since February due to a combination of a stronger rupiah and a successful rice harvest during the particular period.

Earlier this week the IMF also expressed optimism that inflation this year could reach single digits, despite renewed weakness in the rupiah.

The slackening off of inflationary pressure has allowed the central bank to lower domestic interest rates, crucial to help ease the burden on the state budget for covering interest payments on government bonds issued in the late 1990s to help finance the bank bailout program.

On Wednesday, the interest rate on Bank Indonesia SBI promissory notes fell slightly to 14.93 percent from 14.99 percent. Earlier this year, the benchmark rate hovered at more than 17 percent.

A lower interest rate environment would also help the corporate sector to obtain bank lending at affordable cost.

Meanwhile, BPS deputy chairman Slamet Mukeno said that education costs jumped 4.5 percent in July, after dropping by 0.16 percent the previous month.

He added that housing costs increased 0.91 percent during the month, while transport and communication costs were up 0.8 percent.

Processed food prices rose 0.61 percent, and clothing was up 0.31 percent. The prices of basic foods, however, declined by 0.61 percent.