Bloomberg News

Indonesia’s July Inflation Accelerates on Higher Food Prices

August 01, 2012

Indonesia’s inflation quickened for a second month in July, limiting scope for the central bank to join its neighbors in lowering interest rates even as declining exports threaten growth.

Consumer prices rose 4.56 percent from a year earlier, after climbing 4.53 percent in June, the statistics bureau said in Jakarta today. The median forecast of 23 economists in a Bloomberg News survey was for a 4.59 percent gain. Inflation was mainly held up by increasing food costs, the bureau said.

Bank Indonesia has held off from adding to a February rate cut, seeking to support a currency that has fallen about 4 percent in 2012. Policy makers from China to the Philippines lowered rates last month, a move Governor Darmin Nasution may avoid amid the risk of price pressures as the world’s largest Muslim population observes the fasting period of Ramadan and the Eid al-Fitr festival that marks its end.

“Inflation has started to creep higher, with inflation now in the upper half” of the central bank’s target range, said Chua Hak Bin, a Singapore-based economist at Bank of America Corp. “We expect Bank Indonesia to hold the policy rate” at the Aug. 9 meeting, he said.

The rupiah fell 0.3 percent to 9,470 per dollar as of 2:35 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg.

Record-Low Rates

Bank Indonesia held its benchmark reference rate at a record-low 5.75 percent last month. The central bank said at its July 12 meeting the crisis in Europe and growing imports have put pressure on the rupiah, adding it will develop foreign- exchange monetary instruments to support stabilization of the currency to ensure it reflects fundamentals and is in line with regional counterparts.

Consumer prices rose 0.7 percent last month from June, today’s report showed. The core inflation rate was 4.28 percent, compared with a previously reported 4.15 percent pace in June.

Exports in June fell 16.4 percent from a year earlier, the statistics bureau said. Imports rose 10.7 percent. Indonesia’s trade deficit in June was $1.32 billion, the widest in the past five years, according to the statistics bureau.

“The rapidly rising deficit is symptomatic of an economy growing beyond its productive potential,” said Robert Prior- Wandesforde, director of Asian economics at Credit Suisse Group AG in Singapore. “Indonesia’s rapidly deteriorating external account doesn’t bode well for the rupiah and our foreign exchange analysts expect it to continue underperforming other Asian currencies in the months ahead.”

The statistics bureau will conduct a survey to assess the impact of Europe’s crisis on Indonesian exports, Chairman Suryamin said, without providing details.

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

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


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