Economists offer differing views over high Denpasar inflation rate

Fri, 09/05/2008 11:33 AM  |  Bali

With Denpasar experiencing a higher inflation rate than the national rate for three months in a row, economists urge the government not to keep the inflation rate unchecked.

Nyoman Erawan, an economics professor at Udayana University, warned the government Wednesday against allowing prolonged high inflation rate.

Erawan said the high inflation rate would hurt the poor because high inflation rate would cause the transfer of goods to remain concentrated among high-income citizens.

"Citizens with stagnant salaries will suffer because for these people, higher prices means buying less," he said.

"What the government must do is concentrate on providing more jobs to increase production and fulfill demand," he said.

However, the head of Central Statistics Agency (BPS)' Bali office, Ida Komang Wisnu, said high inflation rate was not all bad.

"What's interesting is that even though the prices of goods and services are rising, we are seeing robust economic activity," he said Tuesday.

"Which means that even though more people are having to spend more, they're also earning more. So in that aspect, the inflation rate is actually somewhat of a good thing."

Prices in nearly all groups of goods and services slowed Denpasar's inflation rate down to 1.09 percent last month from 1.63 percent in July, remaining higher than the national rate for the third month in a row.

Prices of the food ingredients group, the cigarettes, tobacco products and ready-to-eat food group, and the education group were the main factors, rising by 1.84 percent, 2.89 percent and 2.17 percent respectively, according to the BPS report.

Prices of housing products, electricity, water, gas, fuel group and the secondary needs group further affected inflation rate, rising by 0.31 percent and 1.13 percent respectively.

Wisnu said the rising prices was the aftereffects of the government's decision to increase fuel prices in May by an average of 28.7 percent in order to cope with high cost of crude oil prices.

He said many businesspeople were adjusting their prices to cope with the rising cost of production.

From January to August, inflation in Denpasar accumulated to 8.06 percent, while the year-on-year (from Aug. 2007 to Aug. 2008) inflation rate reached 9.39 percent.

August's monthly inflation rate places Denpasar as the city with the 16th highest inflation rate compared to other cities in Indonesia, a jump from its place at 25th last month.

Wisnu said the rising prices showed that Denpasar's economy was improving, citing an exuberant Galungan celebration, a Hindu holiday celebrated once every seven months when Balinese Hindus often spend more on food and other items.

Earlier this month, the Central Statistics Agency reported a national inflation rate of 0.51 percent for August.

"This is a relatively new phenomenon because Denpasar's inflation rate has traditionally been lower than the national inflation rate," Wisnu said.

"But like I said, in that aspect, this high inflation rate is a good thing. Besides, it's still under control." -- JP/Andra Wisnu

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