Indonesia’s Inflation Unexpectedly Quickens on Food Costs

Indonesia’s inflation unexpectedly accelerated in August on rising food costs, limiting scope for the central bank to cut interest rates even as exports slumped for a fourth month.

Consumer prices rose 4.58 percent from a year earlier, after climbing 4.56 percent in July, the statistics bureau said in Jakarta today. The median forecast of 27 estimates in a Bloomberg News survey was for a 4.41 percent gain.

Bank Indonesia has refrained from adding to a February rate cut to try to support the rupiah, which is down more than 5 percent against the dollar in 2012 as exports slide and Europe’s debt crisis saps demand for emerging-market assets. The central bank is also seeking to narrow a current-account deficit that analysts have said threatens to hurt economic stability.

“With domestic demand in Indonesia robust, inflationary pressures still lie to the upside,” said Lim Su Sian, an economist at HSBC Holdings Plc in Singapore. Bank Indonesia may “continue to gradually tighten monetary conditions at the fringes” via the overnight deposit rate and instruments such as the reserve requirement ratio, she said.

The rupiah advanced the most in a week after the report, strengthening 0.1 percent to 9,569 per dollar as of 12:15 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. It has dropped for seven months, matching the longest losing streak since 1998, and is the worst performer this year among the 11 most traded Asian currencies tracked by Bloomberg.

Shipments Decline

Exports dropped 7.3 percent in July from a year earlier, after a 16 percent decline in June, the statistics bureau said today. The trade gap was $177 million in July, compared with a revised $1.29 billion shortfall the month before. Indonesia’s trade deficit is passed its worst, Satwiko Darmesto, an official at the statistics bureau told reporters today.

“We expect the trade balance will remain in deficit over the coming months as soft global demand weighs on export receipts, while the strong surge in investment boosts the demand for capital imports, keeping the import bill elevated,” said Fred Gibson, an associate economist at Moody’s Analytics in Sydney.

Economic growth unexpectedly quickened last quarter as rising investments countered declining exports. Investments accounted for 32.9 percent of gross domestic product in the three months through June, the highest share since the Asian financial crisis.

Output Gains

The country’s purchasing manager’s index rose to 51.6 in August from 51.4 the previous month, according to a report by HSBC Holdings Plc and Markit Economics today.

Consumer prices rose 0.95 percent last month from July as the world’s most populous Muslim nation celebrated the end of the fasting month, today’s report showed. The core inflation rate was 4.16 percent, compared with a 4.28 percent pace in July.

Indonesia’s inflation rate will probably average 4.5 percent in 2012 and 5.1 percent next year, according to the median estimate of 11 economists in a Bloomberg survey. The central bank said last month that the benchmark rate at a record-low 5.75 percent is still consistent with its inflation target of 3.5 percent to 5.5 percent in 2012 and 2013.

The current-account deficit was $6.9 billion in the three months through June, from a $3.2 billion shortfall the previous quarter, Bank Indonesia said last month. The overall balance of payments deficit was $2.8 billion in the second quarter, it said. Bank Indonesia expects the current-account gap to narrow to 2 percent of GDP in the second half and the balance of payments to return to surplus in the same period.

To contact the reporter on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Hidayat Setiaji in Jakarta at hsetiaji@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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