Bank Indonesia (BI) forecasts the inflation rate to be below 4.9 percent by end of the year, due to the decline in global commodity prices and stable prices during Ramadhan, a senior official says.
Perry Warjiyo, BI director for economic research and monetary policy, said on Friday that global economic uncertainties would cause a slowdown in economic growth, which would in turn result in the decline of commodity prices.
“Commodity prices will ease, so the impact on inflation will be lower,” he told reporters at BI headquarters in Jakarta.
“The government’s market operation is also working, and rice imports have started, so food inflation will be lower and there’s no huge volatility for other inflation,” he added.
The month of Ramadhan is key to the nation’s consumer prices index (CPI), as prices during the fasting month and week-long Idul Fitri festivities are generally the highest throughout the year due to peaking demands – primarily for food, clothing and transportation, as families across the archipelago travel to meet each other, dine together and buy new clothes to celebrate.
“This month, we forecast 0.8 to 0.9 percent inflation, but it could probably go lower,” Perry said, citing a year-on-year “Ramadhan inflation” rate of 4.6 to 4.7 percent, in line with economists’ forecasts.
The central bank targeted a 4 to 6 percent headline inflation rate this year, while the government forecast 5.65 percent inflation.
The Central Statistics Agency (BPS) will announce the official August inflation data on Monday, September 5, after the Idul Fitri holiday break. Chair Rusman Heriawan has said, however, that August’s inflation would not surpass 1 percent, as overall food prices were seen as steady.
Indonesia is benefiting from a strengthening rupiah and high base effect from last year’s peaking inflation rate when other countries in Asia were currently faced with surging inflationary pressures.
BI has been using the rupiah to stem inflationary pressures from imported products, and better weather conditions have resulted in lower food prices.
The rupiah, Asia’s second-best performing currency this year after the Singaporean dollar, has appreciated about 5 percent so far this year, lowering prices for imported items.
From last year through early this year, inflationary pressures surged in Indonesia, as volatile food prices peaked to 18.25 percent in January, driving up headline inflation to a 21-month high of 7.02 percent.
However, as food prices are trending downward, the headline inflation rate continued to lower ever since, standing at 4.61 percent in July.
“Weather conditions have improved and there hasn’t been any dramatic supply crunch on spices, unlike last year,” Citi Indonesia economist Helmi Arman said in a recent report.
Danareksa Research Institute chief economist Purbaya Yudhi Sadewa also saw a lower headline inflation rate in Indonesia, at below 5 percent by end of the year, compared with 6.96 percent last year.