April 1 (Bloomberg) -- Indonesia's inflation accelerated at the fastest pace in 18 months in March as food and energy prices rose, reducing room for the central bank to cut interest rates to boost economic growth.

Consumer prices increased 8.2 percent from a year earlier, the Central Statistics Bureau said in Jakarta today, above the 7.5 percent median forecast of 18 economists surveyed by Bloomberg News.

Wheat, soybeans, corn and palm oil have touched records this year, stoking prices of noodles, bread and processed food from India to the Philippines. The benchmark stock index widened its decline on speculation accelerating inflation may prevent Bank Indonesia, which expects economic growth to slow in 2008 from its fastest pace since 1996, from reducing borrowing costs this week.

``I didn't think inflation would accelerate so fast so soon,'' said Helmi Arman, an economist at PT Bahana Securities in Jakarta. Still, ``as long as the rupiah doesn't depreciate too much the central bank will keep rates unchanged.''

Jakarta's benchmark stock index fell 3.1 percent at 3 p.m. in Jakarta from a decline of 2.1 percent at the midday break. The rupiah slid 0.2 percent to 9,235 against the dollar.

PT Indofood Sukses Makmur, the world's biggest instant- noodle maker, raised prices for a fifth time in ten months in March to recover record wheat and palm oil costs. PT Mayora Indah, an Indonesian maker of biscuits and candies, increased prices by an average 5 percent in February.

Food Prices

Food prices rose 13.6 percent last month, the fastest pace in 18 months, after gaining 12.2 percent in February.

``There are a lot more inflationary pressures in the system waiting to come through,'' said Robert Prior-Wandesforde, a senior economist at HSBC Holdings Plc in Singapore. Rising food prices and the possibility of a cut in government fuel subsidies may spur inflation to average 10 percent in 2009, he said.

Prior-Wandesforde expects the central bank to raise its policy rate by 75 basis points from 8 percent by the end of the year.

Consumer prices rose 0.95 percent from a month earlier. Core inflation, which excludes food prices, accelerated 8.1 percent in March from a year earlier after gaining 7.3 percent in February.

Other indicators also point to growing inflationary pressure. Money supply rose 18.9 percent in December from a year earlier, the fastest pace since April 2001, and wholesale prices surged 21.9 percent, the biggest jump since December 2005.

Money Supply Growth

The central bank's 4.75 percentage point cut in its benchmark interest rate since May 2006 and efforts to slow the appreciation of the rupiah helped boost money supply, said Jim Walker, chief executive officer of Asianomics Ltd.

``They have fueled expansion in money and basically they are creating their own problem,'' Walker said in an interview with Bloomberg Television yesterday in Hong Kong. ``They are probably the worst country in the region for failing to recognize that there is a problem brewing.''

The central bank's Senior Deputy Governor Miranda Goeltom said today inflation has been accelerating because of rising oil prices and not because of excess money in circulation. Bank Indonesia doesn't need to change its monetary policy, she said.

Another report released by the statistics agency showed exports rose 28 percent to $10.53 billion in February, after increasing 33.2 percent a month earlier. Imports more than doubled to $9.63 billion after a 44 percent rise in January.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net; Arijit Ghosh in Jakarta at aghosh@bloomberg.net.

Last Updated: April 1, 2008 04:03 EDT