Year-on-year inflation in July grew at its slowest pace in nine years at 2.71 percent, and will reach the government target of 4 percent at the end of the year, the Central Bureau of Statistics (BPS) said Monday.
BPS chairman Rusman Heriawan said inflation from January to July slowed 0.06 percent, which was in stark contrast with the 8.85 percent increase recorded in the same period last year and the 2.81 percent rise in the same period in 2007.
"Looking ahead, we're confident the inflation this year will be around 4 percent.
"Let's assume that during the festive season *the fasting month and the Idul Fitri celebration at the end of August and in September* inflation will reach up to two percent. And then, for the rest of the year, inflation will be half percent for each month. In that case, total inflation this year is likely to be around 4 percent.
"If our assumptions turn out to be correct, I think the government's inflation target of 4 percent this year is likely to be reached," he said.
Johanna Chua, an analyst at Citi Asia Economics, said that given the low inflation rate, the central bank would likely cut its rate by a further 25 basis points to 6.50 percent on Wednesday.
"We were expecting the 25 basis points cut would be the last option. But we now see a growing risk BI will opt to cut its rate further.
"While exports have been recovering gradually, domestic demand has been relatively resilient, inflation remains benign, and the rupiah has been strengthening up to 2.9 percent against the US dollar in July, we expect BI will shave its key interest rate by another 25 basis points on Aug.5. BI might also hold on to the option of a further rate cut, depending on incoming data," she stated on Citi Asia Economic's Website, on Monday.
BI has cut its key interest rate by 275 basis points to 6.75 percent since November.
BPS data showed inflation in July 2009 alone reached 0.45 percent.
"Based on data we collected from 66 cities across the country, 62 cities experienced inflation while four cities faced deflation," Rusman said.
The highest inflation, 2.19 percent, was recorded in Sorong, Papua, while the lowest, 0.01 percent, was in Purwokerto, Central Java, he said.
Rusman added that the highest deflation, 0.56 percent, occurred in Jayapura, Papua, and the lowest, 0.18 percent, in Samarinda, East Kalimantan.
Based on commodity group reports, the rise in the price of unprocessed food products contributed 0.26 percent to July 2009's inflation rate.
The rise in the price of processed food and beverage products, tobacco and cigarette products contributed 0.06 percent to July's inflation.
Price increases in the recreation and sports sector contributed 0.08 percent to July's inflation, and increases in the price of transportation, communication and financial services goods and services contributed 0.04 percent.
Textile and textile products on the other hand contributed 0.01 percent to deflation.
