Inflation Dips in September, Easing Rate-Hike Pressure

Dion Bisara & Reuters | October 01, 2010
The Central Statistics Agency said on Friday that exports grew 30 percent in August compared to the same month last year, with the automotive and footwear industries leading the way. (JG Photo/Yudhi Sukma Wijaya) The Central Statistics Agency said on Friday that exports grew 30 percent in August compared to the same month last year, with the automotive and footwear industries leading the way. (JG Photo/Yudhi Sukma Wijaya)

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Inflation eased for the first time in six months in September, giving the central bank room to leave interest rates unchanged next week, analysts said on Friday.

Year-on-year inflation slowed to 5.8 percent last month, from 6.4 percent in August, according to the Central Statistics Agency (BPS). Monthly inflation was 0.44 percent, down from 0.76 percent in August, and year-to-date inflation was 5.28 percent, the BPS said.

BPS chairman Rusman Heriawan said the lower inflation figures could be attributed to a decline in prices after the Idul Fitri holiday. Prices traditionally rise during Ramadan and Idul Fitri because of increased demand.

“We see rice prices are still high, while other food commodities have dropped,” Rusman said. “We hope the rice price can drop so that inflation does not exceed 6 percent this year.”

Bank Indonesia has said it will not raise its benchmark interest rate, currently at 6.5 percent, this year if inflation remains within its year-end target of 6 percent.

Inflation above the 6 percent mark during July and August had prompted some analysts to call for rate hikes. On Friday, some analysts moved back their projections for the next hike.

“We’ll listen more next time. Indonesia’s tame inflation means rates are on hold this year,” economist Wellian Wiranto said in a report for HSBC, which earlier had predicted sharp hikes in the second half to 7.5 percent.

A Reuters poll this week showed analysts expected the central bank to hold the rate at its policy meeting on Tuesday, and pushed back expectations for a hike to the first quarter, a shift from an August poll predicting a hike to 7.0 percent by December.

Analysts may now push their expectations back even further.

“It appears that Bank Indonesia can still maintain the rate at 6.5 percent, so I may change my year-end forecast to 6.5 percent [from 7.0 percent],” said David Sumual, from Bank Central Asia.

“The inflation figures were lower than was expected by many, including myself. The prices of volatile food have gone down, after dominating over the past five months.”

Separately, exports rose 30 percent in August compared to the same month last year, just above the 29 percent registered in July, the BPS said.

Non-oil and gas exports during the first eight months of the year increased 36 percent over the same period last year.

“Strong export growth in our capital goods and raw materials reflect our robust trade and investment activities,” Trade Minister Mari Elka Pangestu said.

Imports rose 26 percent in August, the BPS reported.

The automotive industry experienced robust growth in exports this year through July, reporting sales of $1.6 billion, a 49.7 percent increase from the same period last year, particularly to Thailand and Singapore.

Exports by the country’s footwear industry also did well through July, reaching $1.41 billion, up 33 percent from the same period last year, largely due to relocations early in the year.



With additional reporting by Bilhuda Haryanto