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.”
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