Inflation rose slightly in August as demand increased with Ramadan, the Central Statistics Agency
(BPS) says, limiting the central bank’s ability to cut its benchmark interest rate.
August saw a 2.75 percent rate of inflation from a year earlier as demand rose, likely because
Muslims spend more during the fasting month, which began on Aug. 22, the BPS announced Tuesday. July saw a year-on-year inflation rate of 2.71 percent.
Looking at monthly trends, inflation in August rose 0.56 percent from July, head of the BPS, Rusman Heriawan, told a press briefing. The figure represents an increase for the 0.45 percent recorded in July.
Between January and August, inflation reached 1.22 percent, “the first time inflation surpassed 1 percent” this year, he said.
“Inflation has remained slow so far this year,” Rusman said.
“There was demand pressure in the third and fourth weeks of August because of the fasting month.”
Inflation in August was mainly triggered by increases in the price of staple foods. Muslims usually spend heavily during Ramadan, eating and drinking more than usual in the night time when they break their fast.
Businesses, particularly in the micro sector, take the opportunity to sell food and beverages,
triggering more demand in the market.
“In September, the potential of high inflation is quite large because it’s still the fasting month, and there is also the Idul Fitri holiday,” Rusman said.
The BPS said inflation this year would likely reach its peak in September, unless there was some sort of “shocking” policies that triggered an increase in prices.
“In October and November, inflation will cool down. But in December there will probably be some pressure,” Rusman said.
Analysts expect the central bank will maintain its benchmark interest rate at 6.5 percent given August’s inflation.
Bank Indonesia (BI) has cut its rate by 300 basis points since December last year as inflation has generally slowed.
Citi analyst Johanna Chua said she expected BI to maintain its benchmark rate due to inflationary concerns and the recent agreement among 14 major banks to cut deposit rates.
The banks have agreed to keep their deposit rates at 150 basis points above the BI rate for a
maximum of three months from Aug. 21.
The agreement is aimed at reducing borrowing costs for businesses to expand, which should spur economic growth.
