September inflation figure casts doubt on govt target

A'an Suryana, The Jakarta Post, Jakarta

The Central Statistics Agency (BPS) announced on Tuesday that inflation in September had increased by 10.48 percent over the same month last year.

The strong inflationary pressure during the month gave rise to doubts that the government's single digit inflation target for this year could be met as prices would continue to increase in the coming months as the year-end festivities approached.

The BPS said that inflation in September rose by 0.53 percent over the previous month's level, sending the inflation figure for the first nine months up to 6.17 percent.

The agency said that the increase in inflation was caused by higher prices for goods and services.

It pointed out that basic food prices rose 0.36 percent in September over August, prices of processed food, beverages, cigarettes and tobacco went up by 0.32 percent, housing costs increased 1.07 percent, clothing 0.18 percent, healthcare costs 0.28 percent, and the cost of education, recreation and sports 1.92 percent.

Meanwhile, the cost of communications and transport fell by 0.39 percent following a decline in domestic fuel prices during the month.

BPS deputy chief Slamet Mukeno said that the jump in prices during the month would make it very difficult for the government to meet its single digit inflation target of 9 percent by year- end.

He pointed out that prices would continue to increase in the months ahead amid the looming year-end festivities such as Idul Fitri, Christmas and the New Year celebrations.

"Demand for goods and services usually soars during the festive seasons which later triggers inflation," said Slamet.

He added that higher fuel prices would further worsen the inflationary pressures.

Because of higher oil prices on the international market resulting from fears of an attack on Iraq by the U.S., the government on Monday increased the price of fuel products for the month of October.

Higher fuel prices would increase the cost of transportation, which in turn would trigger higher prices for goods.

The higher inflationary pressures would also put a brake on Bank Indonesia's efforts to lower domestic interest rates.

Lower interest rates are crucial for spurring economic growth and lowering the burden on the state budget in covering the interest on the government bonds issued to finance the late 1990s bank bailout program.

Meanwhile, economist Raden Pardede of the Danareksa Research Institute said that the inflation figure for the coming months would still depend on developments in the international oil market.

"The rise in (domestic) fuel prices may be (a) temporary (trend) depending on developments in the U.S.-Iraq conflict," he told The Jakarta Post.

He said that an inflation rate of between 9.5 percent and 10 percent would still be attainable as people would no longer be burdened by school fees as was the case in August.

"However, it should be noted that a rate of below 9.5 percent will be impossible," he added.