Indonesia Inflation Rate Is Poised to Peak in July, Basri Says

Indonesia’s inflation rate is poised to peak after rising “quite substantially” in June and July, Finance Minister Chatib Basri said.

“Inflation will peak in July,” Basri said in an interview in Moscow yesterday, where he attended a meeting of the Group of 20 finance ministers and central bank governors. Price gains quickened after fuel costs rose and the rate may be back to normal in a “couple of months,” he said.

Basri, who last month oversaw Indonesia’s first price increase for subsidized fuel in five years as Southeast Asia’s largest economy grapples to cut energy spending, said fuel consumption fell in June. Government efforts to open the local market to imports will help curb price gains, the minister said.

Consumer prices rose 5.9 percent last month from the year earlier, the fastest pace since May 2011, based on the latest data from the Central Bureau of Statistics. Price gains may accelerate to an annual rate of 6 percent this month, Basri said July 1.

Economic growth is more important because job creation is a priority for the government, Basri said yesterday. “It doesn’t mean we would like to let inflation go up,” he said. “ We try to overcome those issues and strike a balance.”

Indonesia raised subsidized fuel prices in June to try to curb current account and budget deficits that have led investors to push the rupiah down to a near four-year low.

The central bank has lifted its benchmark interest rate by a higher-than-forecast 75 basis points, or 0.75 percentage points, in the past two months to cool inflation.

‘Relatively Small’

The rupiah has fallen 4.2 percent against the dollar in the past three months, according to data compiled by Bloomberg. The Malay, Philippine, Thai and Indian currencies all had steeper losses.

“If you look in some countries in Southeast Asia, actually the depreciation of the rupiah is considered relatively small compared to other currencies,” Basri said.

The rate increases, combined with lower prices for the country’s commodity exports such as coal and slowing investment, will probably limit economic growth to 6.05 percent this year, according to a Bloomberg survey of economists. The economy expanded 6.23 percent in 2012.

To contact the reporter on this story: Neil Chatterjee in Jakarta at nchatterjee1@bloomberg.net

To contact the editor responsible for this story: Peter Vercoe at pvercoe@bloomberg.net

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