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Core inflation to cool to below 4% in third quarter next year: Bank Indonesia
The central bank expects core inflation to cool to below 4 percent by this time next year, a significant improvement from its year-end projection of 4.6 percent.
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The logo of Bank Indonesia is displayed on the gates of its Jakarta headquarters, as seen in this photograph taken on Feb. 4, 2011. (AFP/Romeo Gacad)
B
ank Indonesia (BI) has projected that core inflation, which reflects demand-pull effects on prices, will return to a target range of below 4 percent starting in the third quarter of 2023, a significant downward revision after inflation was projected to hit 4.6 percent at the end of this year.
Wahyu Agung Nugroho, BI’s economic and monetary policy director, told a media briefing in Bali on Saturday that the rise in core inflation to 4.6 percent was unavoidable, but that his assessment showed it would be temporary.
Soaring fuel prices and their second-round effects – an indirect inflationary impact that increases the prices of goods and services and hence, wages – had indeed dented inflation expectations, Wahyu said, as the two factors had added between 1.8 and 1.9 percentage points to the inflation baseline.
“We believe core inflation will [reach] above our 4 percent target for the end of this year. We will continue the efforts to control it, so it will not affect inflation expectations too much,” he said.
Read also: BI lifts rates more than expected after Fed hike
Core inflation has been key to the central bank’s decision on whether to increase or maintain its interest rates, as it comprises more than 50 percent of all commodities, goods and services in headline inflation, but excludes volatile food prices and administered prices.
BI projected core inflation to increase at a rapid pace, which prompted the central bank to hike its rates by a total of 75 basis points (bps) over the last two months. Its most recent rate hike of 50 bps was higher than expected at double the amount many analysts and economists had expected.
