IF CLAUSE (TUGAS 3)

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.