Helped by lower fuel and transportation costs, the price index continued to ease in January with on-year inflation reaching a nine-month low, according to the latest Central Statistics Agency (BPS) data.

On Monday, BPS reported that the country booked a 0.07 percent deflation in January from a month earlier, after posting a similar rate of deflation of 0.04 percent in December.

The index eased on a year-on-year basis, with January's inflation standing at 9.2 percent, lower than the 11.1 percent booked last month.

The softening inflation rate will provide the central bank with more room to cut further its benchmark interest rates, a prerequisite before banks can adjust to reduce the cost of borrowing, thus promoting more economic activities and growth.

"The price index in January declined in the housing, water, electricity, fuel, transportation, communication and finance sectors," Ali Rosidi, deputy head of BPS, said Monday.

Indexes for the housing, water, electricity and fuel sectors declined by around 0.06 percent while transportation, communication and also financial services sectors fell by 2.53 percent.

The transportation, communications and financial services sectors were the main sectors leading to the deflationary effect in January.

"On the other hand, the indexes increased for tobacco, clothing, health, education and recreation along with the food and beverages sectors. The second round effect of the fuel price decrease might further impact those sectors within the next two or three months," he added..

Rosidi said factors other than the decrease in fuel and commodities prices might also have contributed to the rate of deflation.

"Hypothetically speaking, consumers might have reduced their spending because of the global financial crisis," he said.

BPS researched a total of 66 cities in Indonesia and listed 34 cities which experienced inflation during January.

The highest inflationary rate was in Manokwari in Papua, up 3.84 percent, while the lowest increase was in Batam with 0.01 percent.

As for deflation, the highest was in Manado by 1.35 percent and the lowest in Madiun.

The single digit rate of year on year inflation is a rarity nowadays and a pretty decent achievement according to Finance Ministry Sri Mulyani Indrawati.

"In January, the inflation rate is usually around 1.8 to 2 percent because of the seasonal effect of Christmas and the New Year. The deflation rate of 0.07 percent shows a significant drop in prices," Mulyani said.

"It is very possible we may achieve only 5 to 6 percent inflation by the months of July and August," she added.

The government last month cut fuel prices, the third reduction since last Dec. 1, amid the declining global crude oil prices. (hdt)

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