Single digit inflation rate still possible: BPS

JAKARTA (JP): Although year-on-year inflation has been running at double digit rates since March, ending the year with an inflation rate of below 10 percent was still possible on the back of lower inflation expected for September and October, the Central Bureau of Statistics (BPS) said.

The BPS said on Monday that the consumer price index for September and October should be lower so as to produce single digit inflation by the year's end.

By guaranteeing the supply of goods and services, the government could slow down the inflation rate during these two months, BPS chief Sudarti Surbakti said.

"The chances are slim, but reaching single digit inflation is still possible," she said during a hearing with the House of Representatives' Commission IX for financial affairs.

The government has targeted an inflation rate of 9.3 percent for this year.

Hopes for single digit inflation hinged on the September and October rates, as seasonal factors would drive inflation up in November and December, Sudarti said.

In August, the economy saw a drop in inflation of 0.21 percent, the first such drop since September last year.

Sudarti said a similar fall in inflation in September was unlikely.

She cited a weakening rupiah and the lingering impact of higher electricity charges as being behind inflationary pressure this month.

Although the rupiah had strengthened since the new government took office in late July, the pressure of foreign debt repayments is weighing heavily on the local unit.

On Indonesia's Gross Domestic Product (GDP) growth, BPS deputy chief Kusmadi Saleh said a rate of 3.5 percent for this year was reasonable, despite concerns of a slowing export market in the U.S.

The U.S. economy is edging closer to recession after the recent terrorist attacks on New York and Washington.

The United States remains for Indonesia, as for most other countries, the largest single export market.

A further plunge in the U.S. market could send the global economy spiraling into recession, thus hampering Indonesia's export growth.

But Kusmadi Saleh said that with first semester GDP growth of 3.37 percent, he was confident Indonesia's economy could make it to 3.5 percent.

About 60 percent of the country's economy is driven by small and midsize industries, according to Kusmadi.

Since the 1997 economic crisis, small and midsize industries have assumed a greater role in the economy, he explained.

"Growth in this sector (small and midsize industries) reached between 3 percent and 4 percent compared to last year," he said.

Meanwhile, the government has estimated that the state budget in the second semester of this year will book a lower deficit of US$2.71 billion as against $5.07 billion in the first semester.

State Minister for National Development Kwik Kian Gie said the lower deficit would be the result of a surplus of foreign aid over the outflow of foreign debt repayments.

For the second half of this year, the government has estimated an inflow of $2.81 billion in aid against an outflow of $1.45 billion in debt principle payments.

Also, Indonesia's improved political situation would mitigate the outflow of private capital, he added.

Kwik estimated a lower capital outflow of $4.07 billion compared to $4.98 billion during the first semester.

He further said it was too early to say whether the terrorist attack on the U.S. would send the global economy into recession, and thus hamper new investment inflows.

"There are too many uncertainties. People are not sure where the world economy is heading," he told reporters after a hearing with the House budget commission.(bkm)