Monthly inflation hits 12.76 percent

Monthly inflation hits 12.76 percent

JAKARTA (JP): Rising commodity prices have pushed the monthly
inflation rate to 12.76 percent in February, compared to 6.88
percent in January, the Central Bureau of Statistics (BPS)
disclosed yesterday.

February marked the highest monthly inflation rate in the 30
years of President Soeharto's government.

Accordingly, the inflation rate for the first two months of
1998 was 19.64 percent.

February's figure also pushed the rate for the 11 months of
the current 1997/1998 fiscal year to 28.73 percent, much higher
than the 5.29 percent cumulative inflation rate recorded in the
previous fiscal year.

In February, food prices increased 16.07 percent, housing by
10.03 percent, clothing by 15.62 percent and miscellaneous goods
and services by 9.31 percent, BPS said.

The inflation rate started to increase significantly in
September at 1.29 percent as the currency woes, which first hit
the country in July, began to take effect.

The analysts said the February inflation figure was not
surprising given the sharp increase in prices during the month.

They said they were worried that the currency crisis could
shoot this year's inflation rate to an alarming level. The
government projects the inflation rate for the 1998/1999 fiscal
year, which begins next month, to reach 20 percent.

The February inflation rate has prompted some analysts to
consider that Indonesia may be heading for hyperinflation, with
consumer price index of between 40 percent and 50 percent.

"Let's wait and see what's going to happen in April. But
there's a possibility the rate could surpass 100 percent," said
Goei Siauw Hong, head of research at equity firm PT SocGen Crosby
Indonesia.

He explained that the sharp decline in the value of the rupiah
against the U.S. dollar would cause soaring domestic prices since
Indonesia's products had a 40 percent to 50 percent import
content.

"A 300 percent appreciation of the U.S. dollar against the
rupiah contributed to a 150 percent increase in prices," he said.

He said, however, that the prices in the January to February
inflation figure were mostly based on an exchange rate of about
Rp 5,000 to the U.S. greenback as many of the products sold in
the market came from inventories.

The rupiah is currently hovering at the Rp 8,500 level,
compared to Rp 2,450 last July. The currency dropped to its
lowest level of Rp 17,000 to the dollar in January.

With inventories selling out, prices will generally be based
on new exchange rates in the future, he said.

Subsidies

Another major factor that will push up domestic prices is the
government plan to scrap subsidies and export restrictions,
especially after most subsidies evaporate following the
presidential election on March 11, analysts said.

The government agreed to a 50-point economic reform program
sponsored by the IMF in January after the currency crisis took
hold of Indonesia last August. The program includes the scrapping
of monopolies and subsidies.

The government's plan to raise prices of diesel and kerosene
fuel in April as part of the deal agreed with the IMF was
expected to further push up the already high prices.

The analysts said that the inflationary pressure would be even
stronger after April because the increase in fuel prices would
prompt public transportation companies to raise their fares.

"The rise in fuel prices would also force the state
electricity company to raise its tariffs," one analyst said,
adding the rise in public transportation fares and electricity
rates would certainly bring stronger inflationary pressure.

The government has also banned exports of crude palm oil (CPO)
products to ease the soaring prices of cooking oil in the
country.

"I don't think the government would change the export policy.
Removal of the export ban would send domestic cooking oil prices
upward," the analyst said.

Goei said that in order to contain inflation, the government
must work hard to regain investor confidence to stabilize the
rupiah. The government must convince people that Indonesia is
committed to the economic reform programs, he added.

"In the end, it is the exchange rate stability that could
control inflation," he said. (08)