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Inflation Eases Yet Again but Price-Rise Pace Set to Grow
Muhamad Al Azhari | February 01, 2012

An Indonesian vendor waits for customers at a market in Jakarta on Wednesday. The consumer price index in Indonesia rose 3.65 percent year-on-year in January, slower than the 3.79 percent growth in December, meanwhile inflation continued to ease in January, according to Central Statistic Agency. (AFP Photo) An Indonesian vendor waits for customers at a market in Jakarta on Wednesday. The consumer price index in Indonesia rose 3.65 percent year-on-year in January, slower than the 3.79 percent growth in December, meanwhile inflation continued to ease in January, according to Central Statistic Agency. (AFP Photo)
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Inflation eased for the fifth month in a row in January, due to milder increases in food prices, but analysts were divided on whether Wednesday’s data would prompt the central bank to further cut its key interest rate.

Annual inflation eased to 3.65 percent in January from 3.79 percent in December, the Central Statistics Agency (BPS) said. The figure was slightly higher than what economists had expected. A survey by Bloomberg news of 24 economists showed a median forecast of 3.61 percent.

The raw-food price increase in January was milder than December, despite processed-food prices accelerating slightly.

In non-food categories, the picture was mixed: the prices of clothing; education, recreation and sports; and transportation, communication and finance all eased. But the costs of housing, utilities, fuel and health care rose.

“The monthly increase in rice prices was actually stronger than in January 2011, but the overall food inflation was still milder as chili price increases have been kept at bay,” Citibank economist Helmi Arman said in Jakarta.

Core inflation, which exclude volatile food and energy prices, eased to 4.29 percent in January from 4.34 percent in December. On a monthly basis, consumer prices rose 0.76 percent in January, faster than the 0.57 percent in December.

Prakriti Sofat, a Singapore-based economist from Barclays Capital, said, “January likely marks the bottom in headline inflation, with inflation gradually drifting higher to end 2012 at 5.3 percent … given robust demand and gradual rises in food, health and education costs.”

Her projection exceeded the central bank’s 2012 forecast of 3.5 percent to 5.5 percent inflation.

Prakriti’s projection assumes that the government will raise the price of electricity by 10 percent in April.

She did not expect the government’s plan to ban private cars from using Premium subsidized fuel to occur.

“Yesterday there were press reports that the government may postpone the implementation as the parliament wants the infrastructure required to support the program to be ready,” she said on Wednesday.

On the central bank’s policy rate, she said, “We believe that Bank Indonesia will keep the policy rate unchanged at 6 percent at the meeting next week given manageable inflation.”

Analysts from international bank HSBC, however, predicted a further cut in the rate. “The easing of headline inflation is likely to encourage the BI to ease policy rates further this year,” HSBC Global Research wrote in a report.

“We expect an additional 50 basis point [cut]. … The persistent uncertainty about the global economic outlook only strengthens the BI’s inclination to cut, although Indonesia’s more domestically-oriented economy makes it less exposed to global economic spillovers,” the report said.

It does not say when it thinks the cut will happen. The central bank cut its key overnight rate in November and October by a total of 75 basis points, bringing the rate down to 6 percent.

The board of governors will hold a monthly policy rate meeting next Thursday.