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nflation slowed in September, providing the possibility that overall year headline inflation will be even less than the government’s estimates of 5 percent for this year, the Central Statistics Agency (BPS) said.

BPS chief Rusman Heriawan said Monday that September’s monthly headline inflation slowed down to 0.27 percent from 0.93 percent in August, while year-on-year inflation declined to 4.61 percent from 4.79 percent in the previous month due to declining food prices following the Idul Fitri festivities.

September’s monthly core inflation was 0.39 percent, lower that the 1.09 percent recorded in August, while year-on-year core inflation declined to 4.93 percent compared to 5.15 percent during the
previous month.

“The inflation as of September was 2.97 percent and it seems that it will be below 5 percent by year’s end. If we assume 2 percent inflation until the end of the year, it will only total 4.97 percent. In November, December, inflation will likely ease,” he told reporters during the announcement of the inflation rate at his office.

Both September’s headline and core inflation were below analyst expectations, who had earlier forecast inflation during the month would reach about 0.40 percent month-on-month and 4.96 percent year-on-year.

Standard Chartered economist Eric Sugandi said that softer inflation in September might possibly bring annual inflation to 5 percent or below. He said, however, that the central bank would probably maintain a 6.75 percent benchmark rate at present.

“The government will likely keep its current benchmark rate amidst the market fluctuation,” he said, adding that BI would have possibly anticipated the pressure on the rupiah amidst continuing uncertainties caused by economic crisis in Europe and the US.

The rupiah dropped by 1.7 percent on Monday to Rp 8,938 against the greenback as additional concerns over global economic conditions resurfaced.

The central bank’s board of governors is scheduled to meet next week to make a decision on the current Bank Indonesia (BI) rate.

Institute for Development of Economics and Finance Indonesia (INDEF) economist Ahmad Erani Yustika said that although inflation had softened in September, the government needed to remain cautious over prices of rice and the depreciation of the rupiah.

“There are a number of regions that have had failed harvests due to a long dry season and the targeted rice production may not be fulfilled. The government needs to manage the supply of rice, both produced locally and imported,” he said.

Erani continued that a sharp depreciation of the rupiah might cause higher prices of imported goods, including raw materials, intermediary goods as well as finished goods.

“The central bank has to keep the rupiah from weakening more than Rp 9,000 as it can contribute to inflation from the import side,” he said.

The softer inflation in September, he explained, gave room for BI to cut its benchmark rate to 6.5 percent or even 6.25 percent. However, Erani predicted that the central bank would maintain its rate as it expected to positive sentiment among economic players.