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)