Inflation this year may hit lowest level in decade
Aditya Suharmoko , The Jakarta Post | Wed, 12/30/2009 8:39 AM | Headlines
Full-year inflation will most likely reach the lowest level in a decade as demand slows down due to the delayed negative impacts of the global economic downturn, but the Finance Ministry warns it may pick up next year along with a predicted rise in key commodity prices.
“I’m optimistic [inflation] will be below 4 percent year-on-year,” Finance Minister Sri Mulyani Indrawati said Tuesday, citing falling demand and the stronger rupiah as the reasons for the fairly benign inflation level this year.
Inflation in November rose 2.41 percent from a year earlier, the Central Statistics Agency (BPS) announced in early December.
Acting Bank Indonesia (BI) governor Darmin Nasution said on Dec. 2 that full-year inflation would likely be between 2.9 and 3 percent. This year’s low inflation has prompted BI to keep its benchmark interest rate at 6.5 percent in December.
Darmin said inflation in 2010 would return to its “normal” rate of between 4 and 6 percent.
According to BPS data, Indonesia had booked a record low of 2.01 percent in 1999, two years after being hit by the devastating regional economic crisis.
Mulyani said commodity prices would further rebound in 2010, triggering inflation. But the government has prepared measures to cushion the negative impacts resulting from higher commodity prices, including subsidies to the poor, she said.
“The government will provide subsidies to stabilize prices, from [subsidies for] fertilizer to rice,” she said. “Some administered prices like electricity and fuel will not be changed either.”
High inflation is a threat to the economy as it erodes purchasing power, which is a key growth driver in a consumption-driven country such as Indonesia .
Private consumption makes up about 60 percent of Indonesia ’s economy, BPS data shows.
Mulyani also said the rate of the rupiah to the US dollar in the first quarter of 2010 would remain stable at the current level, unless “political conditions are disturbed”.
The rupiah traded at 9,438 to the dollar at 3:26 p.m. in Jakarta , Bloomberg reported.
The local currency is Asia ’s best performer this year, having strengthened 15 percent as the economy showed continued resilience despite the negative impacts of the global recession, while relatively high interest rates helped attract funds from abroad.
It is estimated the economy will grow between 4.3 and 4.4 percent this year, growing at about 4.5 percent in the last quarter of 2009, said Mulyani.
“There has been a recovery in the trade sector. [But] maybe the manufacturing industry will not have a sharp increase in the last quarter.”
The government aims to achieve higher economic growth of about 5.5 percent in 2010.
Bank Danamon economist Anton Gunawan said BI would likely maintain its key policy rate at 6.5 percent when meeting in January. He estimated inflation this year would reach 3.04 percent.
A lower BI rate would help push banks to maintain low lending rates that should help ease borrowing costs for the real sector.
Coordinating Economic Minister Hatta Radjasa said the government would improve infrastructure to ease logistics costs for businesses and spur economic growth
