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.