Indonesia May Inflation Rose Less Than Expected, Easing Key-Rate Pressure

Indonesia’s inflation rate rose less than expected in May on year, an increase that may not be enough to prompt the central bank to raise interest rates this week.

Consumer prices rose 4.16 percent last month from a year earlier after gaining 3.91 percent in April, the Central Bureau of Statistics said in Jakarta today. The median forecast in a Bloomberg News survey of 22 economists was for a 4.19 percent increase.

Bank Indonesia, which will review its monetary policy on June 4, has left its benchmark interest rate unchanged at a record-low 6.5 percent since August 2009 to support the economy. In contrast, Malaysia and India have raised borrowing costs twice this year to avert asset bubbles and tame inflation as the region’s growth outpaces the rest of the world.

“Though other economies have raised rates, Indonesia does not have a strong case to raise its rate as the inflation outlook remains benign,” said David E. Sumual, an economist at PT Bank Central Asia in Jakarta.

The rupiah fell 0.36 percent to 9,208 against the dollar as of 12:26 p.m. in Jakarta.

Rate Forecast

Bank Indonesia will probably keep its benchmark rate unchanged at 6.5 percent this week, according to all 22 economists in Bloomberg News survey. The measure is at the lowest level since it was introduced in July 2005.

The end of the harvest season hasn’t caused inflation to exceed the central bank’s target even as food prices start to rise, Destry Damayanti, an economist at PT Mandiri Sekuritas, said in an interview on May 26. Bank Indonesia target inflation will range from 4 percent to 6 percent this year.

The cost of rice, the staple for Indonesia’s 235 million people, was unchanged at 8,100 rupiah ($0.87) a kilogram on May 25 from May 3, according to data from PT Food Station Tjipinang Jaya, Indonesia’s biggest market for the grain.

A plan by the government to raise electricity prices in the second half of this year won’t have a significant impact on inflation, Damayanti said. The government plans to increase power tariffs by an average of 10 percent, Harry Azhar, head of the parliament’s budget affairs committee, last month.

“The direct impact to inflation is around 0.3 percentage point to 0.4 percentage point given the weight of electricity consumption is about 2.9 percent in the consumer price index,” Damayanti said.

A rise in electricity prices will contribute about 0.2 percent to inflation, Rusman Heriawan, chairman of the statistics bureau, said today. The government needs to be “cautious” regarding inflation from June to July because a new school will start, Heriwan said.

Consumer prices rose 0.29 percent in May from the previous month after rising 0.15 percent in April.

Indonesia’s exports gained 42.6 percent in April from a year earlier after rising 46.6 percent in March, the statistics agency said. Imports surged 71.9 percent after growing 68.6 percent in March. That left a trade surplus of $517.5 million Heriawan said.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net; Novrida Manurung at nmanurung@bloomberg.net

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