Prices down by 0.22 percent in February

Prices down by 0.22 percent in February

Fitri Wulandari, The Jakarta Post, Jakarta

The consumer price index (CPI) fell 0.02 percent in February from
the previous month as the rice harvest and a stronger rupiah
resulted in lower prices for foodstuffs and lower education and
recreation costs.

The Central Statistics Agency (BPS) also reported on Monday
that year-on-year inflation during the month was 4.6 percent, the
lowest in four years.

The CPI is an index of the prices of consumer goods.

"There is a possibility that deflation will occur again in
March, especially if the quality of the rice harvest is not good
because of the rain. This will result in lower prices," said BPS
deputy chief Slamet Mukeno during a press conference.

The rice harvest started in the latter part of January.

Standard Chartered Bank economist Fauzi Ichsan said that the
lower prices were not surprising given the fact that the rupiah
had been strengthening for quite some time.

"The stronger rupiah has made imported goods cheaper," Fauzi
told The Jakarta Post. The country's production system is heavily
dependent on imported raw materials.

He said that this situation should also provide room for the
central bank to further cut its benchmark interest rate.

"The lower inflationary environment should convince the
central bank to lower the interest rate. There is still room for
a lower SBI, although not much," he said, referring to the
interest rate on one-month Bank Indonesia SBI promissory notes.

The one-month SBI rate hit an all-time low last week when it
fell to 7.48 percent from 7.66 percent earlier.

Aside from the stabilizing rupiah and lower inflation, Fauzi
said surplus funds in the banking would also encourage the
central bank to lower the benchmark rate.

According to Fauzi, the banks have daily surplus funds of
between Rp 25 trillion to Rp 30 trillion.

"The central bank should push the banks to increase lending to
the corporate sector ... so they should lower the SBI rate,"
Fauzi said.

But Raden Pardede of the Danareksa Research Institute said
that any reduction in the SBI rate would be limited as inflation
would likely increase in the run-up to the general elections over
the coming months due to rising consumption.

"Sales of foodstuffs, and telecommunications, electronic and
transportation equipment will pick up again for campaign
purposes," he said.

Elsewhere, the BPS said February's deflation was caused by a
1.44 percent drop in the prices of foodstuffs, and a 0.22 percent
decline in the cost of education and health.

But other prices increased, like those of processed food and
beverages, and tobacco, which were up by 0.7 percent, housing,
utilities and fuel up by 0.64 percent, clothing up by 0.03
percent, and transportation and communications up by 0.12
percent.

The agency also said that cumulative inflation during the
first two months of this year was 0.55 percent. The government's
full-year inflation target is 6.5 percent.