Earlier this year, a lack of domestic production of certain horticultural food products in combination with a shortage of imports (due to the government's new policy to limit imports of horticultural products) contributed significantly to the country's inflation figure.

Indonesia's annual inflation rate now stands at 5.47 percent (YoY). For calender year 2013 it is 2.30 percent (January-May 2013). Core inflation - which excludes products that are susceptible to volatile price movements - is 3.99 percent (YoY). Indonesia's central bank targets core inflation to fall within the 3.5 - 5.5 percent range.

Month      2013
January     1.03%
February     0.75%
March     0.63%
April    -0.10%
May    -0.03%
Total     2.30%

For Indonesia, headline inflation of 5.47 percent is a relatively low figure. However, as the government plans to increase the price of subsidized fuel this June, inflation is most likely to rise a couple of percentage points. Therefore, the government revised up its inflation forecast for full year 2013 to 7.2 percent last week.

Higher inflation will most likely be followed by a policy response of Indonesia's central bank (Bank Indonesia) later this year. The measure to increase the country's benchmark interest rate (BI rate), which is currently set at a record low of 5.75 percent, is expected to slow down economic expansion. Initially, the government aimed for 6.8 percent of economic growth in 2013 but this figure has been revised down to 6.2 - 6.5 percent.

    2008   2009   2010   2011   2012   2013
(annual percent change)
   9.8    4.8    5.1    5.4    4.3    2.3¹

¹ year to date