Perry Warjiyo, Deputy Governor of Indonesia's Central Bank (Bank Indonesia), expects that the inflation rate in October 2013 will fall below 0.26 percent (which is the average October inflation rate since 2007). Warjiyo said that a survey of Bank Indonesia indicated that up to the third week of October, inflation had only reached 0.06 percent. Low inflation - or preferably deflation - is needed to curb Indonesia's current high inflation rate. In September 2013, annual inflation was recorded at 8.40 percent.
In September 2013, Indonesia finally managed to record deflation (0.35 percent) after several months of high inflation figures. Indonesia's inflation accelerated sharply from June after the Indonesian government increased prices of subsidized fuels by an average of 33 percent. Other factors that contributed to the country's high inflation rate in recent months were the holy Muslim fasting month of Ramadan (9 July - 7 August) and subsequent Idul Fitri celebrations (8 August). These Islamic events always trigger higher food prices as well as higher prices for products such as clothes and shoes. Lastly, Indonesia experienced multiple shortages of certain food products due to weak government policies (import quotas), which made prices surge.
Higher inflation since June was the main reason for Indonesia's central bank (Bank Indonesia) to raise its benchmark interest rate (BI rate) gradually from 5.75 to 7.25 percent between June and September. However, this measure has come at the expense of economic growth. The Indonesian government, central bank as well as various international institutions (including the World Bank and IMF) have downgraded their outlooks for Indonesia's economic growth in 2013 to between 5.3 and 5.9 percent.
Bank Indonesia still expects that by the end of the year the country's inflation will range between 9.0 and 9.8 percent.
(annual percent change)
¹ Year to date (January-September 2013)
Source: Statistics Indonesia