Indonesia Inflation Quickens as Weaker Currency Boosts Costs

Indonesia’s inflation accelerated to a 13-month high in October as Asia’s worst performing currency this year boosted the cost of imports, reducing the scope for interest-rate cuts to counter falling exports.

Consumer prices climbed 4.61 percent from a year earlier last month, after rising 4.31 percent in September, the statistics bureau said in Jakarta today. The median of 20 estimates in a Bloomberg News survey was for a 4.59 percent gain. Exports fell 9.4 percent in September from a year earlier, the sixth month of declines.

Bank Indonesia has refrained from adding to a February rate cut to prevent further weakening the rupiah, which has dropped more than 5 percent this year in the biggest decline among 11 Asian currencies tracked by Bloomberg. Southeast Asia’s biggest economy has withstood the global slowdown amid Europe’s debt crisis, with growth forecast by analysts to hold above 6 percent for an eighth quarter in the three months through September.

“The weakening currency has hurt inflation,” Destry Damayanti, chief economist at PT Bank Mandiri in Jakarta, said before the report. “Most likely in November prices will be stable as there’s no pressure from food and transportation. There’s no strong reason for the central bank to change its monetary policy this month.”

Growth Estimate

Indonesia’s growth may accelerate to 6.4 percent in the third quarter on “strong” investment growth and “robust” domestic consumption, Bambang Brodjonegoro, head of the fiscal policy office at the Finance Ministry, said in an interview in Jakarta today.

“We are optimistic for the full year of 2012 that the economy may grow 6.4 percent, a bit below the government’s target of 6.5 percent due to uncertainty in the global economy,” he said. The economy remains resilient and Indonesia may benefit from higher infrastructure investment as government spending increases and state companies start building ports and airports, he said in a Bloomberg Television interview from Jakarta.

The rupiah extended its decline after the report, weakening as much as 0.6 percent to reach a three-year low at 9,664 per dollar, the lowest level since October 2009, according to prices from local banks compiled by Bloomberg. The currency dropped 0.2 percent today to 9,629 as of 2:22 p.m. in Jakarta.

The exports decline in September followed a revised 24.7 percent drop in August. Imports rose 1.2 percent from year earlier. The trade surplus widened to $553 million from $233 million the previous month, and totaled $1.03 billion in the nine months through September, the statistics office said.

Trade Surplus

The trade surplus may reach about $2.5 billion at the end of this year as exports improve, Satwiko Darmesto, a director of distributional statistics at the bureau, said in Jakarta today. Overseas sales may ease to less than $200 billion in 2012 from $203 billion last year, as Europe struggles even as the U.S. shows signs of recovery, Darmesto said.

Consumer prices rose 0.16 percent last month from September, today’s report showed. The core inflation rate was 4.59 percent, compared with a 4.12 percent pace the month before.

Inflation should remain “manageable” this year, Suryamin, chairman of the statistics office, said in a briefing in Jakarta today. Still, having core inflation nearing the level of the main price gauge is a concern, and managing the pressure can be done by the central bank through interest rates and currency stability, he said.

Price gains for 2012 may be 4.5 percent or less, Brodjonegoro said. He declined to say if the government plans to increase the price of subsidized fuel to cut subsidy costs.

“We’ll see, the important thing is we’ve got authority to raise subsidized fuel prices next year if needed from the parliament,” he said.

Indonesia’s budget deficit this year may be bigger than 2 percent of gross domestic price even as it will not exceed 2.3 percent, because the government needs to increase the volume of subsidy fuel, he said.

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