Prices of goods down again in April: BPS

Prices of goods down again in April: BPS

Dadan Wijaksana, The Jakarta Post, Jakarta

Prices of most goods declined again in April, due in large part
to a stronger rupiah and the lower price of rice, the Central
Bureau of Statistics (BPS) reported on Wednesday.

The bureau said that the consumer price index (CPI) in April
fell to 257.26 from 257.87 in March or a deflation of 0.24
percent, the second monthly deflation in a row.

BPS said that the deflation had eased down the year-on-year
inflation during the month to 13.3 percent from 14.08 percent in
March.

BPS said that the price of rice dropped mainly because of good
harvests during the month.

Although the April deflation was surprising to many analysts,
the full-year inflation could still be higher than the
government's target of 9 percent.

Standard Chartered Bank economist Fauzi Ichsan said that a
more realistic target would be 11 percent.

He said that with the government set to raise fuel prices
again this month, the inflationary threat would return.

Higher fuel prices would trigger production and transportation
cost increases, thus putting upward pressure on prices.

Controlling inflation is crucial not only to help maintain the
purchasing power of the people, but also because it would provide
room for Bank Indonesia to guide its benchmark interest rate
lower, which in turn would help reduce the burden of the state
budget in covering the interest rate of government bonds issued
to bail out ailing banks. A lower interest rate environment
would also help businesses to obtain bank loans at affordable
rates.

Fauzi attributed the April deflation mainly to the strength of
the rupiah against the U.S. dollar.

"The rupiah movement (against the dollar) was more important
than the declining food prices. The rupiah factor was more
obvious," Fauzi told The Jakarta Post.

The local unit has been appreciating since the beginning of
the year, and it strengthened to an 8-month high recently
following a string of good economic news including the successful
sale of Bank Central Asia, and the agreement between the
government and the Paris Club of creditor nations to reschedule
the country's $5.4 billion in sovereign loans. So far, the local
unit has appreciated by around 10 percent this year.

"The rupiah is the world's second best performer of late, only
South Africa's currency is performing better than ours," Fauzi
said.

The lower year-on-year inflation in April, however, might give
Bank Indonesia a reason to slightly ease its benchmark interest
rate again.

The interest rate for Bank Indonesia's one-month SBI
promissory notes slightly fell to 16.50 percent at its weekly
auction on Wednesday from 16.61 percent the previous week.

It was the eighth consecutive week of decreases.

Elsewhere, BPS reported that prices of food dropped 1.91
percent in April from March as food distribution improved after
being interrupted by floods in many parts of the country in
February.

Prices of processed food, beverages, and cigarettes rose 0.23
percent on month in April, while housing costs rose 0.43 percent.

Meanwhile, clothing costs dropped 0.09 percent on month, but
education and recreational costs gained 0.02 percent on month in
April.