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Inflation drops further but BI has no room to maneuver
Consumer price index (CPI) growth has dropped to 2.51 percent, which ideally would translate into lower interest rates, but experts see no room for Bank Indonesia (BI) to adjust rates given the continued pressure on the rupiah.
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A woman carries goods over her head on April 5, 2023, at a traditional market in Surabaya, East Java.
(AFP/Juni Kriswanto)
C
onsumer price growth has slowed again, but experts see no room for Bank Indonesia (BI) to reduce its benchmark interest rate because doing so would put more pressure on the rupiah and a further depreciation of the currency could lead to imported inflation.
The headline inflation rate, or annual consumer price index (CPI) growth, dropped to 2.51 percent in June, according to Statistics Indonesia (BPS) data published Monday, which marks a further drop from 2.84 percent logged in the preceding month.
BPS chief secretary Imam Machdi revealed in a press briefing on the same day that “food, beverages and tobacco” was the group that contributed the most to CPI growth last month, accounting for 1.4 percentage points of the 2.51 percent rise.
Prices of volatile food items were up 5.96 percent year-on-year (yoy) in June, but that marks an improvement from a reading of 8.14 percent yoy logged in May.
Headline inflation has been declining since March and has remained within BI’s target range since May last year.
The target range for 2024 is between 1.5 and 3.5 percent, while last year’s was 2 to 4 percent. Before May 2023, BI was battling elevated price pressure, along with central banks in many other countries.
