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May 3, 2008

INDONESIA/ECONOMY
April inflation jumps, subsidies in focus

Indonesia's inflation rate hit a 19-month high in April due to soaring food prices, and some analysts now expect an interest rate rise by the end of the year, although no change is likely at a policy meeting next week.

The consumer price index (CPI) rose 8.96 percent in April from a year earlier, higher than the 8.6 percent forecast by analysts in a Reuters poll and well above 8.17 percent in March. Costly fuel price subsidies are preventing it going even higher.

"It's pretty ugly," said Robert Prior-Wandesforde, an economist at HSBC in Singapore, adding that higher inflation would put pressure on the central bank to lift interest rates.


April's inflation rate reported on Friday was the highest since September 2006, when it hit 14.55 percent. Rusman Heriawan, head of the Statistics Bureau, said it could exceed 9 percent in May.

The Indonesian authorities face difficult decisions over how to contain inflation and hold down the budget deficit, particularly ahead of parliamentary and presidential elections next year.


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