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NEWS UPDATES 5 July 2010

Bank Indonesia moves on inflation

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Bank Indonesia (BI) will take extra effort to curb growing inflation, a senior central bank executive says, as reported in the Jakarta Post.

BI spokesman Diffy A. Johansyah said in Jakarta programs would include the establishment of regional inflation control teams (TPIDs) in four inflation-prone municipalities. “We will speed the establishment of TPIDs in Depok, Bogor, Tangerang and Bekasi [Bodetabek] due to their substantial contribution to nationwide inflation,” Diffy told journalists in his office. The central bank initially planned to establish TPIDs in the municipalities in 2012.

The central bank currently has 38 TPIDs throughout Indonesia and plans to increase that number to 66 over the next several years to better control inflation.

Diffy said the TPIDs were one of several efforts made by the central bank to curb inflation pressure, in addition to monetary instruments.

He said that increased inflation stems from money supply increases and also from non-monetary issues, such as a poor transportation system and flooding.

“The problems of infrastructure, continuous rainfall and illegal food hoarding can disrupt the supply of basic commodities leading to high inflation,” he said, adding that BI should focus on controlling inflation in the urban areas which contribute the most to the country’s inflation. Greater Jakarta, for example, contributes 22.5 percent to the country’s inflation rate in June, he said.

The Central Statistics Agency (BPS) announced Thursday that Indonesia’s consumer price index (CPI) climbed 0.97 percent in June from the previous month. The inflation rate from January to June reached 2.4 percent, while the year-on-year inflation rose to 5.05 percent.

BPS head Rusman Heriawan said that the inflation rate increased in June due to high food prices, especially for rice and chilis.

He said strong inflationary pressures would continue from July until September due to increased spending related to new electricity tariffs, the new school year, the Ramadan fasting month and the Idul Fitri holiday.

BI has tried to curb regional inflation by establishing TPIDs to strengthen awareness by regional governments on the negative affects that inflation could have on their residents’ prosperity, DIffy said.

“I have seen an awareness among regional governments on the importance of controlling regional inflation,” he said.

In recent months BI had seen indications of stronger inflationary pressures caused by the price volatility of foodstuffs, especially for vegetables and spices, he said.

“The increase in regional inflation rates is mostly caused by volatile foodstuff prices, especially for vegetables and spices, due to production constraints resulting from continuous rainfall and flooding in many production centers,” he said, adding that a decline in imported commodities also contributed to shortages.

Problems of distribution stemming from a lack of transportation and infrastructure also contributed to the decrease in foodstuffs, he added.

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