Ramadan Contributes to Indonesian Inflation Bump

By webadmin on 04:17 pm Jul 31, 2012
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Dion Bisara

Inflation probably accelerated in July as transportation costs climbed and commodity prices rose ahead of the fasting month of Ramadan and subsequent Idul Fitri holiday.

The consumer price index — a measure of the price level of goods and services — rose 4.59 percent to 5 percent in July from a year earlier, according to a range of estimates from several economists surveyed by the Jakarta Globe on Monday.

At the lower end of the range, prices rose at the fastest rate since September, when inflation climbed 4.61 percent. The Central Statistics Agency (BSP) will announce July’s inflation data on Wednesday.

Gundy Cahyadi, an economist at OCBC Bank in Singapore, forecast inflation at 5 percent in July, citing Ramadan as the factor that drove food prices higher. “We expect a relatively decent spike in July inflation figures, with the distortion caused by Ramadan falling slightly earlier this year,” he said.

Economists at Bank Danamon predicted a 4.59 percent increase in the CPI in July, citing food prices, particularly chicken, eggs, fish, garlic, sugar, and processed foods, as the biggest factor due to the Ramadan fasting month. Inflation also rose in part because of higher transportation costs as the summer school holidays started in the middle of June and ended in the middle of July.

“Prices for recreation and transportation services — especially air transportation — rose moderately toward the end of the school holiday,” Danamon economist Anton Gunawan said in a recent report. “There may be also an increase in education services due to the beginning of the new school year.”

Prices of staple foods such as rice, cooking oil, chicken and eggs have been rising for the past month, according to data released by the Trade Ministry on Monday.

Chicken was selling for an average of Rp 27,574 per kilogram, up 10 percent from last month. Eggs sold for Rp 18,653 per kilogram on average, a 9.6 percent increase, and sugar sold for Rp 7,969 a kilogram, up 0.7 percent.

On the other hand, the price of onions showed a 13 percent decline, and red chilies dropped by 3 percent.

With pressure on food prices, Anton said, year-on-year core inflation might have reached 4.24 percent last month.

A drought in the United States is curtailing production of soybeans, and that is sending local prices higher and causing food manufacturers to raise their selling prices. Imported soybeans rose Rp 8,539 a kilogram, up 1 percent from the previous month on an average basis.

OCBC’s Gundy says food prices are unlikely to rise through the end of the year due to tame global commodity prices. The central bank is likely to continue holding its key interest rate steady until the end of the year.

“We see little need for BI [Bank Indonesia] to change, given that growth prospects remain modest and our medium-term inflation is still trending upwards,” Gundy said.