Bank Indonesia, the central bank, will be on guard for global oil prices that are on a rising trend, to keep the country's inflation in check in 2018. (Antara Photo/Akbar Nugroho Gumay)

Indonesian Economy in Good Health Despite Rising Oil Prices: Central Bank


JANUARY 04, 2018

Jakarta. Bank Indonesia — or BI, the country's central bank — said local economy remains in check despite rising global oil prices. Nevertheless, BI also warned against a worsening in the food price volatility index, which may increase inflation.

Oil prices jumped on Wednesday (03/01) to new two-and-a-half year highs as robust output in the United States and Russia balanced tensions from a sixth day of unrest in OPEC member Iran, a Reuters report said.

US West Texas Intermediate (WTI) crude futures stood $60.87 a barrel late on Wednesday, up 49 cents from their last close and their highest level since June 2015, the report said.

Meanwhile, Brent crude futures — the international benchmark for oil prices — were at $67 a barrel, up 43 cents but still trailing Tuesday's high of $67.29 that was the most since May 2015.

"Inflation [in Indonesia] will peak at 3.5 percent plus or minus 1 percent (2.5 percent to 4.5 percent) in 2018. Rising oil prices are one thing we need to be cautious of," BI Governor Agus Martowardojo told reporters on Wednesday in Jakarta.

Agus said higher oil prices are a positive for the government's budget, since that means the country can earn more from its oil and gas exports.

He said the central bank is aware the government is unlikely to revise its current oil subsidy plan, which means the price of gasoline at retailers will remain unchanged.

Higher fuel prices typically lift inflation, causing multiplier effects on various prices of goods.

Energy and Mineral Resources Minister Ignasius Jonan said last month the government had decided not to raise fuel and electricity prices in the first three months of 2018, fearing that doing so may cause shortage in fuel supply.

The central bank governor issued a cautious note on the prospect of volatile food prices, which may spike inflation further.

Indonesia's annual inflation rate picked up in December, the first time it rose since June.

The Central Statistics Agency (BPS) announced on Tuesday that the country's headline consumer price index (CPI) increased 3.61 percent in December from a year earlier, a rise from the one-year low of 3.30 percent in November.

December's inflationary pace was higher than market consensus as analysts in a Reuters poll forecast an annual inflation of 3.4 percent for December.

The food price volatility index — part of the consumer price index (CPI) — showed an increase of 0.71 percent year-on-year in December. That compared to a 1.24 percent contraction in November.

Analysts said heavy rains in some of the country's food-producing regions added to the volatility of food prices during the Christmas and New Year holiday seasons.

"[But] macroeconomic [indicators] look good and strong.... Growth should hover around five percent [in 2018]," the central bank governor said.

With additional reporting from Reuters