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Indonesia is likely to see inflation of 5.5 percent to 5.7 percent this year, near the upper end of the central bank’s forecast, Finance Minister Sri Mulyani Indrawati said on Thursday.

“Inflationary pressure is expected to rise to 5.5 percent to 5.7 percent, in line with an increase in commodities prices on international markets and an increase in global demand in line with the global recovery,” Sri Mulyani said.

Driven by rising prices for food and commodities, annual inflation accelerated to its fastest pace in seven months in January, increasing pressure on the central bank to raise its key interest rate.

The Central Statistics Agency (BPS) said on Feb. 1 that inflation was 3.72 percent in January from the same month a year earlier, down from 2.78 percent in December.

The central bank has predicted 2010 inflation of 4 percent to 6 percent, after a 10-year low of 2.78 percent last year. The economy grew 5.4 percent in the fourth quarter from a year earlier, the fastest pace in five quarters.

“With growth strong and inflation grinding higher, there are some concerns about an early hike from Bank Indonesia,” said Prakriti Sofat, a regional economist at Barclays Capital in Singapore. “However, we continue to believe that the first quarter-point rate hike will only materialize in the latter part of the second quarter.”

The central bank kept its benchmark interest rate unchanged at 6.5 percent for a sixth-straight month on Feb. 4, judging that inflation is not yet enough of a risk to warrant higher borrowing costs.

The government’s budget deficit will be maintained at 1.6 percent of gross domestic product this year, Sri Mulyani said. The shortfall in 2009 totaled Rp 87.2 trillion ($9.33 billion), or 1.6 percent of GDP, less than an initial forecast of Rp 129.8 trillion, she said in early January. Bloomberg & Jakarta Globe