RI likely to miss inflation target

Alfian, The Jakarta Post, Jakarta | Mon, 12/20/2010 12:13 PM | Business

The government says it will be difficult to meet this year’s inflation target of 5.3 percent, explaining that extreme weather had resulted in soaring food prices

“I must admit that it is hard for us to meet the inflation target of 5 plus minus one as the extreme weather has had a significant impact on our food (prices),” Coordinating Economic Minister Hatta Rajasa said Friday evening.

The revised 2010 state budget sets the inflation target at 5.3 percent, while the central bank has forecast an inflation rate of between 4 and 6 percent. In 2011, the state budget also sets the inflation assumption at 5.3 percent. When asked to what extent the current extreme weather would affect next year’s inflation target, Hatta said the government “was still optimistic” about the next year’s assumption.

Earlier this month, the Central Statistic Agency (BPS) said November’s inflation was “worrisome” and “only a miracle could see the target met”. The agency announced that the inflation rate rose 5.98 percent from January to November this year, while year-on-year inflation stood at 6.3 percent in November, breaching the central bank’s maximum target of 6 percent.

The BPS said the higher inflation was triggered by higher commodity prices, particularly rice prices, which contributed the most to November’s inflation rate. Hatta said the government had taken several measures to control staple food prices, including importing rice to maintain supply.

Meanwhile, Bank Indonesia (BI) Governor Darmin Nasution said that this year’s inflation rate may likely surpass 6.5 percent, but next year would not pass the rate forecast of between 4 and 6 percent, as “it will be in the range of 5 plus minus 1 percent”.

BI predicts next year’s inflationary pressure to remain heavy, but the rate will not be as high as this year, Darmin says.

“In the future, inflationary pressure will remain relatively heavy, but the inflation rate will not be as high as this year. The supply side of our economy, including production of goods and infrastructure projects, will be higher,” he told reporters at BI headquarters in Jakarta on Friday.

The inflation rate reached 5.98 percent up to November of this year, nearing the central bank’s higher-end target of 4 to 6 percent for the entire year of 2010.

BI director for monetary policy research Perry Warjiyo explained that next year’s inflationary pressure would mostly come from core inflation instead of volatile food and administered prices like this year.

“Inflationary pressure will be fundamental next year,” he said, predicting a higher challenge for policymakers to respond as liquidity pressures will also come from surging capital inflows that are expected to continue until next year. (est)