Indonesia’s Inflation Accelerates on Floods, Power Tariffs

Indonesia Inflation Accelerates on Floods, Higher Power Prices
A vendor arranges clothes at her stall standing in floodwaters at the Cipulir market in Jakarta on Jan. 18, 2013. Photographer: Dimas Ardian/Bloomberg

Indonesia’s inflation accelerated in January after power tariffs rose and as floods submerged areas of Jakarta and other provinces.

Consumer prices climbed 4.57 percent from a year earlier, after a previously reported 4.3 percent gain in December, the Statistics Bureau said in Jakarta today. The median estimate in a Bloomberg News survey of 20 economists was 4.47 percent.

Bank Indonesia has held interest rates steady for nearly a year and the central bank won’t need to react to the floods with monetary policy as the impact will be temporary, Deputy Governor Hartadi Sarwono said last week. Inflationary pressures may rise in coming months amid higher power prices and minimum wages, and as a weakening rupiah raises the costs of imported goods.

“Inflation accelerated due to higher power tariffs and minimum wages, and also food prices climbed on the bad weather last month,” said David Sumual, an economist at PT Bank Central Asia in Jakarta. “BI will likely keep the interest rate unchanged as inflation pressure is only temporary and the economy needs stimulus.”

The rupiah declined 0.3 percent to 9,765 per dollar as of 10:26 a.m. in Jakarta, according to prices from local banks compiled by Bloomberg. In the past year, the currency is the worst performer in Asia after the yen among 11 most-active Asian currencies tracked by Bloomberg.

Consumer prices rose 1.03 percent last month from December, today’s report showed. Core inflation was 4.32 percent, compared with a previously reported 4.4 percent pace the month before.

Fuel Subsidies

Indonesian President Susilo Bambang Yudhoyono is under growing pressure to raise fuel prices and curb oil imports as currency risks persist and the window to act narrows ahead of elections in 2014. The government will probably need to increase subsidized-fuel prices this year, according to economists at Bank of America Corp., Australia & New Zealand Banking Group Ltd., Standard Chartered Plc, PT Bank Danamon Indonesia and Moody’s Analytics.

The country announced in January it will limit the use of partially government-funded diesel and the trade minister said Yudhoyono will evaluate energy charges in the next few weeks.

Floods which began on Jan. 15 affected 41 square kilometers (16 square miles) of Jakarta, representing about six percent of the city’s land area, Sutopo Purwo Nugroho, a spokesman at the National Agency for Disaster Management, said Jan. 18.

“We hope the government will pay attention to the January inflation figure,” said Suryamin, chairman of the statistics office, in Jakarta today. “The government needs to monitor and control inflation in the coming months.”

Exports Decline

Exports fell 9.8 percent in December, a separate report showed today. Imports declined 5.6 percent from a year earlier, leading to a deficit of $155 million. For 2012, exports dropped 6.61 percent and imports climbed 8.02 percent. The trade deficit was $1.63 billion last year, today’s report showed.

The government will release fourth-quarter gross domestic product figures on Feb. 5. Southeast Asia’s largest economy grew 6.24 percent last quarter from a year earlier, according to the median estimate of 10 economists surveyed by Bloomberg.

The economy grew 6.17 percent in the three months ended Sept. 30 from a year earlier, holding above a 6 percent pace for an eighth quarter supported by domestic demand and investment.

“Buoyant consumer spending and investment helped to offset weaker exports, hurt by slumping commodity export prices,” said Chua Hak Bin, a Singapore-based economist at Bank of America Corp.

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