Indonesia Inflation, March 2008

Consumer Price Index (CPI) in March 2008 experienced an increase (inflation) of 0.95% (m-t-m). The figure is higher than February 2008 inflation (0.65%). The annual inflation growth (y-o-y) amounted to 8.17%, higher than February 2008 inflation of 7.40%. The calendar year inflation in March 2008 amounted to 3.41% (y-t-d).

Inflation of core components in March 2008 was 0.87% (m-t-m) or contributing 0.49% to the general Inflation. The inflation growth of core components for the calendar year (y-t-d) amounted to March 2008 was 3.18%. The yearly inflation (y-o-y) of core components was 8.07%.

Source:

Indonesia Central Bureau of Statistics (BPS)

Indonesian inflation quicker than expected last month.

by Peter Charalambous

Indonesia’s inflation has quickened to its fastest pace for over 18 months during March as a result of higher food and energy prices; as a result the central bank has less room to maneuver by reducing the interest rates to boost the economy.

During the period consumer prices increased 8.2 percent from last year, which was 0.7 above the median forecast and in general food prices have risen by 13.6 percent last month.

Due to record prices of wheat, soybeans, corn and palm oil stable foods such as noodles, bread and processed food had been affected causing increased imports from neighbors India and the Philippines.

Core inflation, which excludes food prices also accelerated to the tune of 8.1 percent in March, and as Rupert Prioe-Wandesforde a senior economist at HSBC in Singapore said: “there are a lot more inflationary pressures in the system waiting to come through” and so a continued combination of rising food prices and the possible cut of integral government fuel subsidies may plunge the economy into turmoil and spur inflation by another 10 percent by 2009.

Alongside this current period of acceleration inflation comes the prediction by the Bank Indonesia, which expects economic growth to slow to pre 1996 levels.

Other signs points towards a downturn and increased inflationary pressures such as the money supply growing by 18.9 percent from a year ago whilst wholesale prices increased by 21.9 percent over the same period and according to Jim Walker, chief executive officer of Asianomics Ltd “they have fueled expansion in money and basically they are creating their own problem, as they are probably the worst country in the region for failing to recognize that there is a problem brewing.”

Indonesia inflation expected to rise in March; BI to keep rate on hold

Jakarta (ANTARA News) - Indonesia's annual inflation is expected to have accelerated in March which should prompt the central bank to keep its key interest rate on hold, economists said.

On a monthly basis, the consumer price index may reflect a slowdown, given that food prices reached abnormally high levels in recent months on the back of record global commodity prices, according to estimates by most economists polled by Thomson Financial.

"I think the danger about the CPI data is that although it is easing on a monthly basis, the annual rise is even higher. That will spark negative sentiment," said Anton Gunawan, an economist at Bank Danamon Indonesia.

The government will release the inflation data on Tuesday.

Forecasts for inflation by 10 economists polled by Thomson Financial range from 0.21 percent to 0.5 percent in March from February. In February, the CPI was up 0.65 percent from the previous month.

Year-on-year, CPI is expected to show a rise of between 7.37 percent and 7.63 percent, following the 7.4 percent increase in February.

One basic assumption for a month-on-month slowdown is the decline in rice prices following the start of the harvest season this month in some parts of the country, said Destry Damayanti, an economist at Mandiri Securities.

"I think some food components like spices, cooking oil, still rose but not as strongly as in the previous month. We may also see pressure from kerosene prices during the month," Bank Danamon's Gunawan said.

Kerosene prices in some cities were driven higher by scarce supply as a result of the government's program to replace non-subsidized kerosene, which is used mostly by poor families for cooking, with liquefied petroleum gas to reduce its burden of oil subsidies.

Apart from the fall in rice prices, fiscal measures such as the removal of import tax on wheat and soybean should have also helped stabilize food prices, said Eric Sugandi, an economist at Standard Chartered Bank.


Monetary implications

Amid threats of mounting prices, the central bank is expected to keep its key interest rate unchanged in April, instead of giving in to expectations for a rate cut, economists said.

Bank Indonesia's benchmark rate has been steady at 8.0 percent over the last four months, a level viewed by many as high enough to contain inflation in the coming months.

"Like many central banks across the region, BI is likely to remain patient in the face of growing uncertainties surrounding the conflicting pressures of accelerating inflation versus a potential global economic slowdown, " said David Cohen, an economist at Singapore-based Action Economics.

The threat of rising food and energy prices will continue to fuel inflation going forward, making it difficult to cut interest rates, said Mandiri's Damayanti.

"I don't see BI easing rates should inflation stay above 7.0 percent, although toward the latter part of the year we must reassess the situation" said Gundy Cahyadi, an economist at Ideaglobal Ltd in Singapore.

Damhuri Nasution, an economist at Danareksa Research Institute, said Bank Indonesia will certainly keep the BI rate steady to maintain real interest rates in the range of 1.5 percent to 2.0 percent.

Eric Sugandi of Standard Chartered said in the event the central bank finds a reason to cut its rates, the earliest it would do so would be in May, when food prices are expected to ease.

Damayanti said she is maintaining her year-end inflation forecast at 7.5 percent and the BI rate at 8.0 percent. (*)