Indonesia’s inflation hits 5-year high, above central bank target
2022.07.01 06:56
FILE PHOTO: A woman wearing a protective mask shops for vegetables at a traditional market, as the coronavirus disease (COVID-19) outbreak continues, in Jakarta, Indonesia, September 23, 2020. REUTERS/Willy Kurniawan
By Gayatri Suroyo and Stefanno Sulaiman
JAKARTA (Reuters) – Indonesia’s consumer prices rose at the fastest pace in five years in June, topping forecasts and breaching the central bank’s target range amid a surge in food prices, official data showed on Friday.
June’s annual inflation rate accelerated to 4.35%, the highest since June 2017 and above the 4.17% forecast in a Reuters poll. Last month’s figure was3.55% in May.
Bank Indonesia’s (BI) target range is 2% to 4%.
However, the annual core inflation rate, which strips out government-controlled and volatile prices, came in below market expectations at 2.63% in June. The poll had forecast a 2.72% rate and May’s 2.58%.
BI, one of the least hawkish central banks, has said it would focus more on the core inflation rate, instead of the headline figure, to determine the pace of its post-pandemic policy normalisation.
BI has raised the reserve requirement ratio for banks as part of its roll-back of pandemic-era stimulus, but has not raised interest rates due to relatively low inflation.
Data showed the rise in inflation was primarily driven by rising prices of chilli, shallots, eggs, as well as transportation tariffs amid rising fuel prices.
Monetary policymakers had flagged headline inflation would breach the upper band of its target range, but saw limited risks to price pressures broadening out since core inflation was muted, said Singapore-based DBS economist Radhika Rao.
Margo Yuwono, the head of Indonesia’s statistics agency, said high global prices of wheat, sugar and soy had so far had limited impact on domestic inflation. While flour and noodle makers had seen costs rising, they have not passed this on to consumers, he said.
Josua Pardede, Bank Permata’s economist in Jakarta, said a core inflation rate under 3% meant demand-pull inflation was under control and that any change in BI’s policy stance would likely be driven more by movements in the rupiah currency.
“Commentary in the run-up to the July meeting will be scrutinised for signs of change in stance in light of narrowing US-ID rate differentials and (an) under pressure currency,” DBS’ Rao said.
