Indonesian Inflation at 19-Month Low as Food Prices Fall
Inflation in Indonesia fell to its lowest level in 19 months in November, giving Bank Indonesia, the central bank, some scope to reduce its key interest rate amid increasing concerns about the global economy.
The consumer price index, a measure of inflation, rose 4.15 percent in November from the same period a year ago, the Central Statistics Agency (BPS) said on Thursday. It was the smallest rise since a 3.91 percent increase in April 2010.
BPS data showed that the easing in annual inflation was helped by food prices falling from higher base levels for certain goods such as chilies. On a year-on-year basis, the price increase for raw foods eased to 4.86 percent in November from 5.81 percent in October. Processed foods such as bread eased to 4.37 percent from 4.65 percent. Raw foods and processed foods count for more than a third of the index.
The index gained 4.42 percent year-on-year for the month of October.
“I do think that the fall in inflation in November gives BI more credibility,” said Euben Paracuelles, an economist at Nomura Securities in Singapore.
“They have been citing lower inflation as a rationale for cutting rates in the last two meetings. That has proven to be correct.”
Paracuelles was referring to the central bank’s surprise move in October to cut its benchmark overnight rate, the BI rate, by 50 basis points, to 6 percent, citing low inflation and growing concern about the global financial crisis. October’s rate is the lowest level ever.
“The real question now is not whether BI cuts this month but by how much,” Paracuelles said. “I’m not so sure if they will do another 50 basis point cut. That will really depend on what happens in Europe between now and the next meeting, and how the rupiah responds as a result.”
Core inflation, which excludes volatile food and energy prices, inched up to 4.44 percent in November from the same period a year earlier. That compares to 4.43 percent in October. However, analysts said it would not alter sentiment that inflation is under control. BI had penciled inflation at around 4-6 percent this year.
In a more precise prediction, Halim Alamsyah, a deputy governor at the central bank, said on Wednesday that Indonesia’s inflation was forecast at 4.7 percent this year and 4.9 percent next year, which “would still be in line with Bank Indonesia’s target range.”
He also said the central bank had cut its economic growth forecast for next year to 6.3 percent from 6.7 percent to reflect a global slowdown and a decline in demand from advanced economies for Indonesian exports.
BI’s governor, Darmin Nasution, on Thursday reiterated the bank’s concern.
He said the risk of contagion from Europe’s crisis was “very real” and could possibly reach here if investors continued to dump their investments in emerging markets, such as Indonesia.
“Adequate preparation will be the only protection,” Nasution said at an international seminar in Bali.
This is the latest update on Indonesia’s economy. Some of you might have read it somewhere else, nevertheless I hope you find this article useful for you. What’s your prediction on BI’s rate? Will it stay at 6 percent? Or maybe drop to 5.75 percent? Again, repeating my question on one of my posts before, where do you see the inflation rate and BI rate will be at the end of the year? Will it make Indonesia to be more attractive investment destination for investors? Share your views with us!
PS: additional article for the related topic.