Low
inflation estimated for 2016
Economists expect that
consumer prices will fall to the low or middle range of the central bank’s
target this year thanks to the oil price slump, manageable food prices and a
stable rupiah.
Economists contacted by
The Jakarta Post forecast a range of 3.5 to 4.5 percent for the annual headline
inflation rate, well within the central bank’s 3 to 5 percent target range. Low
inflation is expected to boost people’s purchasing power amid a domestic
economic slowdown.
Bank Indonesia (BI)
tries to estimate inflation as part of its policy to stabilize the rupiah. It
has cut the nation’s benchmark rate by 50 basis points in two policy meetings
this year, and many have said that subdued inflation provides room for further
rate cuts to stoke growth in the country’s slowing economy.
The Central Statistics
Agency (BPS) reported Tuesday that Indonesia saw 0.09 percent deflation in
February, bringing the year-to-date inflation rate to 0.42 percent and
year-on-year figure to 4.42 percent.
Bank Mandiri economist
Andry Asmoro said that full-year inflation would most likely orbit around the
low range of 4.2 percent to 4.5 percent, also below the 4.7 percent forecast
set by the government within the 2016 state budget, backed by price cuts in several
components such as food and energy, both of which make up a significant portion
in the overall inflation rate.
“The government seems
to be doing quite well now in distributing food. Distribution, as you know, is
key for controlling prices in Indonesia,” Andry added. Food materials make up
for the biggest contributor to inflation, BPS data shows.
According to last
year’s statistics, the list of contributors to inflation was dominated by food
materials such as rice, shallots, broiler chicken, fresh fish and garlic.
Their prices have been
known to skyrocket at times due to insufficient domestic supply, forcing the
government to import those materials.
In January, for
instance, imports of cereal jumped 35.2 percent on a monthly basis and 86.3
percent on annual basis.
Kenta Institute
economist Eric Sugandi attributed imports as the reason behind falling food prices,
which in February posted 0.58 percent deflation month-to-month.
“If
the government maintains the availability of food supplies, we will see full-year
inflation stable, even lower than currently estimated,”
Eric said, setting his own forecast at 3.5 percent to 4 percent for 2016.
In terms of energy,
both economists said that the recent fuel and electricity price cuts had led to
quite significant deflation for the past two months against the backdrop of
falling global oil prices.
State electricity
company Perusahaan Listrik Negara (PLN) and state-run oil and gas firm PT
Pertamina announced Tuesday that they would cut down prices further because of
the stable exchange rate and low global oil prices.
“I suspect energy
prices will remain low throughout the year because no significant uptick will
be seen in global oil prices in the near future,” said Eric.
Bank Central Asia (BCA)
chief economist David Sumual said that inflation should remain subdued as the
country entered rice harvest months, especially as oil prices remained weak and
the rupiah stayed stable.
However, higher
inflation is expected in March, when infrastructure projects will start to
create multiplier effects across various economic sectors, said BPS deputy head
of distribution and service statistics Sasmito Hadi Wibowo.
“These projects can
keep economic activity going and pump up people’s purchasing power,” he added.
BI
sees Consumer Prices Falling in February
Bank Indonesia (BI)
expects the consumer price index (CPI) to fall by around 0.13 percent in the
course of February due to decreasing food prices. Meanwhile, year-on-year
inflation is predicted to sit at 4.38 percent.
BI executive director
Juda Agung said that according to the latest survey conducted by the central
bank, the expected monthly deflation in February was driven by lower prices of
staple commodities.
"Several goods
that recorded steeply rising prices in January have [become cheaper] in
February. The decline in electricity prices has also taken effect. If rice stocks are
under control, March inflation will hopefully be benign as well,"
he said in Jakarta on Friday.
Juda explained that
February usually saw relatively low inflation due to seasonal factors. Assuming
that there were no policies affecting public goods such, as fuel price changes,
the first quarter of the year would typically score relatively low inflation.
Despite the late
rice-planting season from March to April, he assumed that inflation could be
maintained at moderate levels, as long as rice stocks were under control.
"So, we must be concerned about the stock issue," Juda said.
He further explained
that the central bank projected full-year inflation to fall to 4 percent in
2016, driven by the plunge in oil prices to US$37 per barrel. The fuel price
adjustment would help keep inflation at a low level.
"If
fuel prices are adjusted or if there is an adjustment in transportation
tariffs, core inflation and volatile food inflation will surely be affected,"
he explained, adding that the new estimate was lower than the 4.7 percent
inflation assumption in the 2016 state budget.
