February Inflation Contained in Indonesia: Analysts

By webadmin on 10:12 pm Feb 28, 2010
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Dion Bisara

Annual inflation probably rose in February, but remained manageable and would likely not force the central bank to raise interest rates sooner than expected, analysts said.

Purbaya Yudhi Sadewa, chief economist at the state-run Danareksa Research Institute, predicted annual inflation of 3.88 percent in February, and a 0.37 percent increase from January.

“The increase in the rice price is not as high as in January. Moreover, the prices of several other foods dropped, such as sugar, beef, chicken and eggs,” Purbaya said.

Eric Alexander Sugandi, an economist with Standard Chartered Bank, also predicted that annual inflation had accelerated last month.

“We think February inflation will be 4.1 percent year on year and 0.6 percent month on month,” Eric said, adding that improving food supply and distribution in recent months helped ease month-on-month inflationary pressures.

Driven by rising prices for food and commodities, inflation accelerated to its fastest pace in seven months in January, when the annual consumer price index gained 3.72 percent from the same month a year earlier, after posting a 2.78 percent increase in December.

Month-over-month inflation was 0.84 percent in January, up from 0.33 percent in December.

However, the price of rice has dropped in the past month, from Rp 6,500 on Feb. 1 to Rp 6,300 per kilogram on Thursday, Bloomberg reported.

“In addition, the rupiah’s appreciation helped contain imported inflation,” Eric said.

The rupiah traded at 9,335 against the US dollar as of Friday, compared with 9,355 on Feb. 1.

Bank Indonesia has predicted relatively contained inflation of 4 percent to 6 percent this year, and has held its benchmark interest rate steady at 6.5 percent since August. “With inflation like this, the central bank will not change its monetary policy soon,” Purbaya said.

Eric added: “As inflation remains manageable and the current BI rate level is still supportive of the rupiah, we expect BI to keep the BI rate unchanged at 6.5 percent in March.”

The government also gave signals last week that sharp increases in prices would be unlikely as it plans to pour an additional Rp 43.9 trillion into subsidies this year.

The government also estimated full-year 2010 inflation would be 5.7 percent.