26 January 2022 (closed)
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Indonesian inflation is expected to have eased further in February 2015 on lower food prices. One notable exception, however, is rice. Rice prices have soared approximately 30 percent year-on-year (y/y) up to IDR 12,000 per kilogram in February. Higher rice prices have been caused by distribution obstacles for Raskin (‘rice for the poor’) operations in combination with this year’s late harvest season (between March and June). Fluctuation in prices of rice, the staple food of 250 million Indonesians, has a significant impact on inflation in Indonesia.
In February 2015, Indonesia’s annual inflation pace is forecast to ease to 6.70 percent (y/y) from 6.96 percent (y/y) in the first month of the year. Late last year, inflation surged as the Indonesian government introduced higher subsidized fuel prices (in November 2014). However, the government was able to reform the subsidized fuel policy in January 2015 (resulting in sharply lower fuel prices) amid low global oil prices. Easing inflationary pressures made the central bank of Indonesia (Bank Indonesia) decide to lower its key interest rate (BI rate) by 25 basis points to 7.50 percent at the Board of Governor’s Meeting on 17 February. Speculation emerged that the central bank may cut its BI rate further this year as the negative impact (capital outflows) caused by the (looming) higher US interest rate are offset by monetary stimulus in the European Union (EU) and Japan (expected to result in capital inflows). Meanwhile, a weaker rupiah means that the country’s trade balance (and current account balance) is to improve. Therefore, Bank Indonesia is not expected to intervene too much in the market to support the currency. The rupiah is one of the weakest performers (against the US dollar) among Asian emerging market currencies in 2015, depreciating about four percent towards the IDR 13,000 per US dollar level (a level last seen after the Asian Financial Crisis in the late 1990s).
Indonesian Rupiah versus US dollar:| Source: Bank Indonesia
Although most analysts believe that Indonesian inflation has eased in February (prices of chili, meat and onions have eased), there are some voices that claim accelerated inflation is possible, not only because of the steep rise in rice prices but also because the depreciating rupiah exchange rate (against the US dollar) causes imported inflation as imported goods become more expensive.
Besides distribution issues and this year’s late harvest, soaring rice prices are also blamed on the change in structure of Bulog (the state agency that manages Raskin program) which now distributes its rice through mediation of third-party traders.
Statistics Indonesia (BPS) is scheduled to release the official February inflation figure on Monday (02/03).
Inflation in Indonesia:
|Month|| Monthly Growth
| Monthly Growth
| Monthly Growth
Source: Statistics Indonesia (BPS)
Inflation of Indonesia 2008-2014:
(annual percent change)
Source: World Bank