Rising Inflation Won’t Linger After Holiday Season, Experts Say

By webadmin on 11:34 pm Aug 31, 2010
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Jakarta Globe

Jakarta. Asmawi, a vendor at Pasar Rumput Manggarai in South Jakarta, is breathing a bit easier these days. After a steep run-up ahead of Ramadan, rice and chili prices have stabilized and even begun to fall, making it easier for her, customers and everyone else who was feeling the pain.

“I expect the situation will be more stable after Lebaran,” Asmawi said on Tuesday.

Asmawi is not the only one. Economists and government officials are predicting a sharp increase in year-on-year inflation in August, to levels well above the government’s target for annual inflation, when the Central Statistics Agency (BPS) releases the figures today.

But they say the seasonal spike caused by Ramadan and Idul Fitri will subside, and Bank Indonesia can afford to wait until at least November before it starts raising its benchmark interest rate.

BPS chief Rusman Heriawan last week said annualized inflation in August was likely to top 6.5 percent, well above the central bank’s full-year target of 6 percent, after coming in at a 15-month high of 6.22 percent in July.

Economists surveyed by Bloomberg saw August inflation at 6.7 percent.

Bank Indonesia has said it would keep its benchmark rate at 6 percent as long as inflation remained contained within 4 percent to 6 percent.

Still, economists said it is too early for the central bank to start raising the benchmark rate.

Aldian Talo Putra, an economist from Mandiri Sekuritas, predicted August inflation of 6.84 percent but said Bank Indonesia would wait until the “seasonal factors fade away” before raising its key rate from 6.5 percent in November.

He predicted a quarter-point hike each month until it reached 7.5 percent.

“Inflation is already past BI’s target, but we predict that the rate increase will be implemented by November at the earliest,” Aldian said.

Bank Danamon economist Anton Gunawan agreed that the central bank would raise rates in November, and predicted August inflation of 6.6 percent.

“It’s not appropriate to raise the rate based by the number in August and September only,” Anton said. “The distortion from seasonal factors like Ramadan, Lebaran and the electricity rate hike is way too high. I think BI should hold off for a moment.”