Indonesia Optimistic 2010 Inflation to Fall Short of Target

Thursday, 5 August 2010

ANTARA News

The government believes the 2010 inflation rate can be kept below 6 percent although the monthly inflation rate climbed to a 15-month high of 1.57 percent in July.

The 2010 inflation rate would most likely accord with the government-set target of 5 plus or minus 1 percent, Coordinating Minister for Economic Affairs Hatta Rajasa said on the sidelines of market operations in Jakarta on Tuesday.

"From the beginning the assumed inflation rate remains at 5 plus or minus 1 percent and we are still optimistic that it can be below 6 percent," he said.

Deputy Finance Minister Anny Ratnawati said the prices of several commodities in the wake of the upcoming fasting month of Ramadhan and subsequent Eid-ul-Fitr festival would likely fall, thus leading to deflation.

"Normally, the prices of several commodities will fall (after the festivities)," she said.

Bank Indonesia (BI) Governor-elect Darmin Nasution said on Tuesday the July`s inflation rate of 1.57 percent was mainly driven by a 1.08 percent rise in food prices but it would decline as supply improved and the harvest season arrived.

"Indeed, the car license tax hike factor is also involved in it but this is just a one-time event. It does not happen repeatedly," he said.

Darmin said the inflation rate this year would still undergo pressures due to the impact of the electricity price hikes but he was optimistic supply of staples would remain safe and thus would not negatively affect inflation.

"Of course, we will keep monitoring it and seriously make the needed calculations. Do not think we will remain idle," he said.

The Central Statistics Agency (BPS) said on Monday the on-month inflation rate rose to 1.57 percent in July from the previous month, driven chiefly by higher food prices.

The agency noted the prices of rice rose 0.26 percent, purebred chicken 0.17 percent, red chili 0.16 percent, garlic 0.1 percent, small chili 0.08 percent, egg 0.07 percent, onion and fresh fish 0.07 percent each, and potato, air transport, house rent and granulated sugar 0.02 percent each.

Meanwhile, fees on extended licences of cars and motorcycles surged 100 percent and 50 percent respectively in July, adding 0.21 percent to the July inflation.

The July inflation rate brought the calendar inflation rate to 4.02 percent, 1.28 percent lower than the government forecast of 5.3 percent for this year and increased the year-on-year inflation rate to 6.22 percent.

The core inflation in July rose 0.49 percent from the previous month and in the year to July 2010 reached 4.15 percent.

BPS Chief Rusman Heriawan hinted on Monday the 2010 inflation rate may come close to 6 percent as July`s inflation of 1.57 percent was the highest monthly inflation rate so far this year.

"Our inflation rate will range from 5.3 percent to 6 percent with the medium of 5.5 percent," he said on Monday.

He said the inflation rate in the year to July 2010 reached 4.02 percent, falling short of the government-set target of 5.3 percent.

"Admittedly, there is still 1.3 percent left to achieve the inflation rate target of 5.3 percent at the end of this year.
This means that the on-month inflation rates in the next five months must average 0.2 percent. I think it is difficult to reach an inflation rate of 0.2 percent in August," he said.

He said the direct impact of power tariff hikes would be felt by the public only in August.

In addition, August and September were the fasting month in which public consumption was normally on the increase particularly ahead of the post-fasting month festivities, he said.

"Actually, the indirect impact of the power tariff hikes has been felt," he said.

Any Ratnawati said the government would always try to make the full-year inflation consistent with the government forecast of 5 plus or minus 1 percent.

Meanwhile, BI Deputy Governor Hartadi A Sarwono said the government needs to conduct close coordination to prevent the monthly inflation rate from rising further.

He said the high inflation rate was caused by high food prices due to limited supply and an increase in administered prices for electricity and toll road tariffs.

The BPS chief said to keep the annual inflation rate at the lower target of 5.3 percent the government needed to work hard to keep down the prices of basic necessaries.  (*)