ASEAN KEY DESTINATIONS
Lower Indo food prices ease inflation
Inflation slowed for the first time in four months in February, with harvesting in several rice-producing regions easing pressures on volatile foods.
Consumer prices rose 6.84 percent last month from a year earlier, having gained 7.02 percent in January, the Central Statistics Agency (BPS) announced on Tuesday.
Food prices rose 14.8 percent last month, compared to 16.2 percent in January. BPS chairman Rusman Heriawan said February saw a slower increase in food prices from the previous month for the first time in four years.
Bank Indonesia will hold its next policy meeting on Friday, and expert opinion is mixed on whether the central bank will raise its benchmark interest rate after the report of decreased inflation.
“The volatility in food prices triggered this below-expected reading. Anecdotal evidence suggests major food prices retreated rather sharply in the second half of the month,” said Gundy Cahyadi, an economist with OCBC Bank. “The strength in the rupiah has also helped on this front.”
He also said Bank Indonesia must focus on managing inflation, which has been accelerated by increasing food and energy costs and strong domestic demand.
“If Bank Indonesia is true to its word that February’s 25-basis point rate hike was taken to manage inflationary expectations, another 25-basis point rate hike should follow on Friday,” he said.
The central bank raised its benchmark rate 25 basis points to 6.75 percent last month, having kept the rate steady at 6.5 percent since April 2009.
It has forecast inflation between 4 percent and 6 percent this year, and Bank Indonesia governor Darmin Nasution said on Tuesday that it would consider inflation projections, economic growth targets and the exchange rate when determining whether to change its policy.
“Those are necessary to keep the BI rate consistent in achieving its inflation target while considering its impact to economy growth,” Darmin said.
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