Bloomberg News

Indonesia’s Inflation Slows in February Before Planned Fuel-Price Increase

March 01, 2012

Indonesia’s inflation slowed for a sixth straight month in February, supporting the central bank’s decision to ease monetary policy even as a government plan to raise fuel prices threatens to revive cost pressures.

Consumer prices rose 3.56 percent last month from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a 3.65 percent pace reported earlier for January. The median forecast of 20 estimates in a Bloomberg News survey was for a 3.8 percent increase.

Bank Indonesia, which cut interest rates in its last meeting, said today it will respond to a surge in costs if needed, even as the inflation rate has fallen faster than expected. President Susilo Bambang Yudhoyono’s administration has said it is proposing to raise prices of subsidized fuel.

“This low rate is unlikely to be sustained for long, as rising oil prices have prompted the authorities to consider a subsidized fuel-price increase, coupled with a 10 percent electricity tariff hike,” Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore, said before the report.

Indonesia’s inflation may exceed the central bank’s target this year if the government raises prices of subsidized fuel by 1,000 rupiah ($0.11) per liter or more, Governor Darmin Nasution said in February. Southeast Asia’s biggest economy proposes to increase prices by 500 rupiah to 1,500 rupiah per liter, Energy and Mineral Minister Jero Wacik said last month.

Faster Than Anticipated

Consumer prices climbed 0.05 percent in February from the previous month, today’s report showed. Core inflation accelerated to 4.31 percent, compared with a previously reported 4.29 percent pace in January.

“Inflation has been declining faster than anticipated,” Halim Alamsyah, Bank Indonesia’s deputy governor, said in Singapore today. “We are looking at this phenomenon carefully - -is it permanent or temporary,” he said, adding that the central bank has been “too cautious” in its monetary policy easing. It will respond to a surge in prices if needed, he said.

The country faces higher inflation expectations, Alamsyah said, adding that consumer prices will revert to trend in 2013 after the planned increase in fuel costs spurs gains.

The government will propose revisions to the 2012 budget including raising the inflation target to 6 percent to 7 percent from the current 5.3 percent, and boosting the crude-price assumption to $105 a barrel from $90 a barrel, Coordinating Minister for the Economy Hatta Rajasa said today in Jakarta. Lawmakers will discuss budget revisions this month.

Exports rose 6.1 percent in January from a year earlier, the statistics department said, after gaining 2.2 percent in December. Imports climbed 16 percent, and the nation’s trade balance showed a surplus of $923 million in January.

Indonesia expects exports to ease, Alamsyah said. Still, the country won’t be significantly hurt by the global turmoil.

The rupiah was down 0.1 percent as of 4:38 p.m., according to prices compiled by local banks. The Jakarta Composite index declined 0.6 percent to 3,962.28 as of the close in Jakarta.

To contact the reporter on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net

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


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