New school year to push inflation up

The Jakarta Post, Jakarta

Inflation in July is expected to accelerate compared to the previous month due mostly to the start of new school year, a top official of the Central Statistics Agency (BPS) said on Tuesday.

While prices of many basic food commodities were likely to remain stable, inflationary pressure would most probably come from hikes in book prices and other education-related items, new BPS chief Choiril Maksum said.

However, he refused to say as to what level inflation would rise, saying the official figure would be available on Aug. 2.

Monthly inflation in June was 0.48 percent, as the falling rupiah pushed prices of basic food commodities higher. Meanwhile, on-year inflation during the month (comparing to the same month last year) stood at 6.83 percent. Annualized inflation in May was 6.47 percent.

Inflationary pressure has intensified during the past two months, creating fears that the government's full-year inflation prediction of 6.5 percent will be surpassed. Some expects forecast inflation for the year to reach around 7 percent.

During the first semester, inflationary pressure came from various sources, including a hike in utility prices, soaring oil prices and the fall of the rupiah against the U.S. dollar.

The local currency has fallen by double digits so far this year due to a combination of economic uncertainties at home and overseas, and also political concerns stemming from the July 5 presidential election, although it recently rebounded as the election turned out to be trouble-free and orderly.

Mild inflation should help maintain people's purchasing power -- a prerequisite to strong domestic consumption, which has become the backbone of economic growth during the past couple of years.

It will also help ease pressure on the central bank to increase its benchmark interest rate, particularly amid the rise of the U.S. rate.

Rising domestic interest rates would otherwise hurt the economy, as lending would become more expensive.