September inflation figure casts doubt on govt target

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.