Indonesian consumers are on edge over the discovery of 'plastic rice' in local markets. (JG Photo/Yudhi Sukma Wijaya)

Slowing Inflation Expected From Monday’s Data Drop

BY :ARIENTHA PRIMANITA

FEBRUARY 27, 2015

Jakarta. Inflation appears to have slowed further in February from a month earlier, with commodity prices remaining steady, taming the impact of rising rice prices and presenting an opportunity to the central bank to cut interest rates further.

The consumer price index is likely to ease to 6.7 percent in February since the same period a year ago, according to the median estimate of 12 economists polled. January inflation eased to 7 percent on-year from a pace of 8.4 percent a month earlier.

The Central Statistics Agency (BPS) is scheduled to announce Indonesia’s official inflation and trade data on Monday.

Economists noted that raw food prices such as chili, onions and meat declined thanks to ample supply.

“From our observation, food prices eased in February but rice prices increased,” Aldian Taloputra, an economist at Bank Mandiri Sekuritas told Globe Asia on Friday.

Rice prices increased 30 percent to average Rp 12,000 per kilogram in February, compared with the same period last year.

Still, David Sumual, chief economist at Bank Central Asia, said the increase in rice prices were enough to catapult February’s inflation to 7.4 percent.

“In addition, the rupiah weakened, affecting inflation through more expensive imported products,” David said.

Lower inflation should give Bank Indonesia, the central bank, room to cut its rate further, Mandiri’s Aldian said, adding that Bank Indonesia’s benchmark rate could see another 25 basis point cut between April and June this year.

The central bank unexpectedly cut its benchmark last week rate by 25 basis points to 7.5 percent to boost growth, as it expect inflation to be lower than 4 percent at the end of this year.

Cutting the interest rate further could put more pressure on rupiah, which has fallen 4 percent so far this year against US dollar this year to levels last seen in August 1998.

Still, the central bank said the weakening rupiah was not a concern, as it would help the country exports. The bank also noted that the rupiah has actually appreciated against several currencies this year.

“There’s no need to be worried about Indonesia’s economy; the rupiah is in good condition and Bank Indonesia will always be in the market to guard it,” central bank governor Agus Martowardojo told reporters on Friday.

Standard Chartered Economist Eric Sugandi said he expected another 25 basis point cut in the benchmark rate in March due to good inflation data.

“It’s better to cut in the first quarter rather than the second because we could have the seasonal ballooning current account problem in the second quarter,” Sugandi said.

GlobeAsia; additional reporting from Reuters

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