July 1 (Bloomberg) -- Indonesia's inflation accelerated to a 21-month high after the government increased fuel prices, stoking speculation the central bank will raise its benchmark interest rate for a third straight month.

Consumer prices rose 11.03 percent in June from a year earlier, after gaining 10.4 percent in May, the Central Statistics Bureau said in Jakarta today. The agency changed its base year to 2007 from 2002 for calculating June's inflation. The increase in prices was less than the median 12.6 percent forecast in a Bloomberg News survey of 20 economists, who used 2002 as the base year.

Central banks across Asia are raising borrowing costs as surging oil and food prices spur inflation. Bank Indonesia Governor Boediono, who is grappling with the impact of a 30 percent increase in local fuel costs in May, next meets with his colleagues to determine monetary policy on July 3.

``If the central bank doesn't do anything, then people might think that monetary policy is getting loose again,'' said Purbaya Yudhi Sadewa, chief economist at the Danareksa Research Institute in Jakarta. Raising borrowing costs ``can help control inflation expectations.''

Boediono will probably raise the central bank's key policy rate by a quarter of a percentage point to 8.75 percent, according to a Bloomberg survey of economists, even as economic growth slows. Bank Indonesia hasn't increased borrowing costs at three consecutive meetings since 2005.

President Susilo Bambang Yudhoyono's government expects growth in Indonesia's $364 billion economy to slow to 6 percent this year from 6.3 percent in 2007.

Petroleum Gas

Consumer prices rose 2.46 percent in June from a month earlier after a 1.4 percent gain in May. The statistics agency didn't release core inflation data.

Using the previous 2002 base and applying a month-on-month change of 2.5 percent, inflation ``shot up 12.8 percent in June,'' Robert Prior-Wandesforde, an economist with HSBC Holdings Plc in Singapore said in a note to clients. ``The central bank can not afford to ignore these signals and must continue to tighten its monetary stance.''

Inflation may accelerate further in the coming months in Southeast Asia's largest economy.

PT Pertamina, Indonesia's state oil company, today raised prices of liquefied petroleum gas used by non-low income families by 24 percent, the first increase in 3 1/2 years, to reflect higher costs.

Wholesale prices climbed 25.5 percent in April before the government raised fuel costs.

Price pressures are gathering pace elsewhere in the region. India's 11.4 percent inflation rate is the highest in 13 years, while Thailand's consumer prices rose 8.9 percent in June, the biggest jump in a decade. Soaring prices have prompted central banks in India, Pakistan and Vietnam to increase borrowing costs even as a slowdown in the U.S. economy weakens the region's export growth.

Exports Rise

``Food prices have surged; domestic fuel prices have just been hiked, and the second-round impact of these trends have just begun to appear,'' Timothy J. Bond, an economist at Merrill Lynch & Co. in Hong Kong, said in a note yesterday. ``In a region with loose macro policies and six years of above-trend growth, it's easy for the inflationary process to take root.''

The statistics agency also said exports rose 32.5 percent to a record $12.89 billion in May, while imports excluding those from export promotion areas rose 50 percent to $9.69 billion. The nation had a trade surplus of $1.23 billion compared with a deficit of $525 million a month earlier.

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

Last Updated: July 1, 2008 05:13 EDT