Bloomberg News

Indonesia’s Inflation Slows, Easing Pressure to Raise Rates

June 01, 2011

(Adds comment from statistics bureau in fourth paragraph; economist in seventh, eighth paragraphs.)

June 1 (Bloomberg) -- Indonesia’s inflation slowed for a fourth straight month as a strengthening currency capped import costs, easing pressure on policy makers to raise interest rates.

Consumer prices in Southeast Asia’s biggest economy rose 5.98 percent last month from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with the 6.16 percent gain reported earlier for April, and the 5.94 percent median forecast in a Bloomberg News survey of 19 economists.

Bank Indonesia, which will release its next monetary policy statement on June 9, kept its benchmark rate at 6.75 percent for a third straight month in May to bolster slowing economic growth. President Susilo Bambang Yudhoyono’s policy makers have extended fuel subsidies and let the rupiah climb more than 5 percent this year to contain inflation amid rising food and oil costs.

“Inflation in May was influenced core inflation rather than volatile foods, Djamal, deputy chairman of the statistics office, said at the inflation announcement. “However, rice prices tend to rise in late May, and the government needs to be aware of the possibility of inflation in the months ahead because the harvest is over.”

Indonesia’s rupiah rose 0.1 percent to 8,538 per dollar as at 2:18 pm in Jakarta, according to Bloomberg data. The currency has gained 5.2 percent this year

Holding Interest Rates

The central bank has refrained from boosting borrowing costs since its first rate increase in more than two years in February, in contrast with neighbors from Malaysia to India where officials have accelerated monetary tightening. While the country’s policy measures have helped ease inflation, authorities “can’t be complacent,” Deputy Governor Hartadi Sarwono said in May.

Inflationary pressure will be higher in June, July and August due to seasonal factors, Andry Asmoro, an economist at PT Bank CIMB Niaga in Jakarta, said after the announcement.

“We expect BI would raise their benchmark rate next month,” Asmoro said.

Indonesia’s inflation this year may be below 5.5 percent if the government delays scrapping fuel subsidies, Sarwono said last week. Consumer prices may rise as much as 6.5 percent should the government decide to raise fuel prices, he said.

Consumer prices climbed 0.12 percent in May from the previous month. Core inflation accelerated to 4.64 percent from the 4.62 percent pace reported earlier for April.

Indonesia’s exports rose 37.3 percent in April from a year earlier, the statistics department said. That compares with the 27.5 percent pace reported earlier for March.

--With assistance from Berni Moestafa and Greg Ahlstrand in Jakarta and Manish Modi in New Delhi. Editors: Stephanie Phang, Greg Ahlstrand

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Widya Utami in Jakarta at wutami@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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