Coordinating Economic Affairs Minister Darmin Nasution said the prices of chili and onion are fueling inflation. (Antara Photo/Sigid Kurniawan)

Inflation Picks Up Again as Dry Season Keeps Spice Prices High

AUGUST 01, 2019

Jakarta. Indonesia's annual inflation rate rose slightly to 3.32 percent in July, as raw food prices maintained an upward trend due to the dry season, the national statistics agency said on Thursday. 

Inflation, which has hovered above 3 percent for the past three months, may narrow Bank Indonesia's policy options. The central bank has signaled that it would continue its easing stance this year to boost growth. 

"Raw foods contributed the lion's share to inflation. Red and birds-eye chilies made a sizeable impact," Suhariyanto, head of the Central Statistics Agency (BPS), told reporters. 

He said core inflation, which excludes seasonal price fluctuations stemming from raw foods and government-administered goods, stood at 3.18 percent.

Indonesia is currently in a dry season, which stunts food production in several regions. The Meteorology, Climatology and Geophysical Agency (BMKG) has estimated that this year would be drier than last year. 

Coordinating Economic Affairs Minister Darmin Nasution said on Thursday that the government has enough rice stocks to dampen fluctuations in the price of the staple this year. 

But the same cannot be said for spices, which would continue to add to inflation.

"It's about chili and onion, in particular. We have yet to find a permanent solution for this problem," Darmin told reporters. 

Inflation has been rising since March, but it is relatively tame from a historical perspective. The government and the central bank both expect inflation to remain below 3.5 percent this year.

Bank Indonesia cut its key interest rate by 25 basis points to 5.75 percent last month, in anticipation of a similar move by the United States Federal Reserve. 

On Wednesday, the Fed did just that, lowering its benchmark interest rate by 25 basis points – the first since 2008 – to stave off a possible economic downturn. 

But Darmin doubts whether Bank Indonesia would immediately follow up with a further cut. 

"We are not an isolated economy, but we also have to see first whether inflation [would allow for another cut] or not," the former central bank governor said.

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