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Indonesian Inflation Expected to Rise to 6.4%
Dion Bisara | December 10, 2010

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Jakarta. Rising food and commodities prices in the run-up to 2011 may see inflation in Indonesia rise faster than the government originally predicted, Finance Minister Agus Martwardojo said on Friday.

Agus said inflation is now forecast to accelerate to between 6.1 percent and 6.4 percent this year. Faster inflation may push the central bank to start raising its benchmark rate.

“Inflation will rise this year, exceeding the original target of 6 percent,” he said.

Indonesian inflation rose to 5.98 percent in November this year from a year earlier, the Central Bureau of Statistics reported earlier this month.

Bank Indonesia elected to keep its benchmark interest rate steady for a record 16th month on Dec. 3 despite growing fears of rising inflation.

The central bank’s key rate, which stands at 6.5 percent, is among the highest in the region, making it especially attractive for investors seeking safety and high yields.

“The increase in basic commodities and basic essentials by the end of the year and also the celebration of religious holidays in December is the reason’’ for accelerated inflation, Agus noted. The government initially forecast inflation at 5.3 percent in its budget document this fiscal year.

He said inflation would remain one of the government’s primary concerns in managing Indonesia’s economy the next year. The finance ministry will continue to improve its communication with Bank Indonesia, the monetary regulator, in order to maintain stability.

“Our challenge is inflation. We will coordinate with Bank Indonesia,” he said.

Bank Indonesia forecast inflation in the range of 4 percent and 6 percent next year.

Hatta Rajasa, Coordinating Minister for Economic Affairs, said inflation pressures are usually quite high in December, along with the increasing purchasing power ahead of Christmas Day and New Year’s Day. There is also substantial government spending at the end of the year, which affects national consumption and inflation, Hatta said.

According to finance ministry data, the government has disbursed Rp 817 trillion ($90.69 billion), or 72.6 percent of its spending target of Rp 1,126 trillion, through Nov. 30.