The consumer price index unexpectedly slowed in February to the lowest level in the last five years as food prices recorded few gains during the month, but analysts warned the government’s plan to increase subsidized-fuel prices in April could push inflation far higher than the government’s target.
The Central Statistics Agency (BPS) reported on Thursday that the year-on-year inflation rate rose to 3.56 percent in February as compared to 3.65 in the same month last year, lower than analysts’ average estimate of 3.8 percent.
The monthly inflation increased 0.05 percent in February, the lowest level recorded since 2007 thanks to little gains in food prices, the agency said. “The inflation rate stood at 0.05 percent in February.
“This is the lowest inflation rate since 2007,” BPS’ newly appointed chief Suryamin said during a press conference at his office.
Suryamin replaced Rusman Heriawan, who was appointed deputy agriculture minister.
Suryamin said that 40 out of 66 cities researched by the BPS recorded inflation in February. “The highest inflation rate was in Mataram with 1.73 percent and in Pontianak with 1.7 percent. The lowest inflation was in Tangerang with 0.03 percent,” he said.
“Inflation took place mainly due to pressure from the raising index of prices of food, beverages, cigarettes and tobacco group, which contributed 0.34 percent, housing with 0.27 percent, clothing with 1.22 percent, health with 0.15 percent, education and entertainment with 0.08 percent and transportation, communication and finances with 0.06 percent,” he added.
An economist from the Indonesian Institute of Sciences (LIPI), Latif Adam, said that the low inflation rate in February was not surprising as it had coincided with rice harvesting.
“In numerous regions, farmers had begun to harvest rice. This pushes rice prices down and we all know that this commodity always contributes between 17 and 20 percent toward inflation,” Latif told The Jakarta Post.
Latif said that the inflation trend would continue to decline until April but then it would significantly rise until June or even July due to the government’s plan to raise fuel prices.
“Even without fuel price hikes, inflation usually creeps up in April. Once the fuel price hike is applied, the impact on the inflation rate will be significant from April to June.
“Due to this, I believe the 2012 inflation rate will be higher than that of 2011. LIPI estimated that the inflation rate in 2012 would be between 5 and 6.5 percent,” he said. Last year’s inflation stood at 3.79 percent.
The government has announced two proposals to reduce fuel subsidies in order to protect the state budget from rising crude oil prices.
The first proposal is to raise fuel prices by Rp 1,500 to Rp 6,000 a liter for both Premium gasoline and diesel. The second is to provide a fixed subsidy of Rp 2,000 per liter to the floating prices based on international price fluctuations.
Both proposals were submitted to the House of Representatives on Tuesday as part of the draft revision of the state budget.
Suryamin said that based on BPS’ simulation, a fuel price hike of Rp 500 would directly contribute 0.31 percent toward inflation rate. “So, if the price hike is planned at Rp 1,500, the rise will contribute 0.93 percent,” he said, adding that the indirect impact of the rise in the fuel price would contribute 1.35 percent. “So, overall, the inflation would add up to 2.5 percent to the inflation rate,” he added.
Coordinating Economic Minister Hatta Rajasa said that to anticipate the surge in inflation following the rise in the fuel price in April, the government would revise up the inflation target to between 6 and 7 percent from the current 4 to 5.3 percent range.