T

he majority of Indonesia'€™s more than 230 million population enjoyed stronger purchasing power last month compared with the previous month, partly thanks to the fall in food prices.

But tough times are yet to come with high inflationary pressure ready to pound the economy ahead of the government'€™s move to increase fuel prices.

Indonesia'€™s consumer price index (CPI) fell to 5.47 percent in May, compared to 5.57 percent a month earlier. The May deflation was attributable to the government'€™s policy to loosen imports of several horticultural products, especially garlic and shallots, and to the decline in gold prices, the Central Statistics Agency (BPS) reported on Monday.

'€œWe managed to push down inflation because we could ensure sufficient food supplies, as well as guarding distribution along the way,'€ Finance Minister Chatib Basri said on Monday.

Despite the deflation, he warned of future inflationary pressure stemming from the impending fuel price increase necessary to resolve Indonesia'€™s deteriorating external imbalances.

The government plans to increase the prices of Premium gasoline and diesel gasoline to Rp 6,500 (66 US cents) and Rp 5,500, respectively, from the current price of Rp 4,500.

This year'€™s planned fuel price increase is expected to drive up annual inflation to 7.2 percent as stipulated in the proposal of the revised 2013 state budget. The government had initially forecast that inflation would top 4.9 percent.

Chatib also calmed the market'€™s concerns over uncertainty in the fuel subsidy debates, saying the government would '€œdefinitely'€ increase the prices of subsidized fuel despite the political controversy.

'€œA move to hike fuel prices is fully in the government'€™s domain. The government is not discussing the subsidized fuel issue but consulting lawmakers about the revised state budget,'€ he said after a meeting with lawmakers at the House of Representatives.

Soaring inflation is likely to put pressure on Bank Indonesia to also increase its key policy rate during its monthly board of governors'€™ meeting on June 13, from the 5.75 percent that it has kept for 15 consecutive months.

Economists have expressed concern over the weakening trend of core inflation, which could be a sign of lower purchasing power. Core inflation '€” a measurement of long-term inflationary trends that exclude prices of volatile foods and government-controlled commodities '€” stood at 3.99 percent in May, as opposed to 4.12 percent in April.

'€œSome statistics have already shown weakening signs, such as rising stock or inventory, declining retail sales, slowing growth of real M1 [money supply] and slowing credit growth,'€ Bank Danamon economist Dian Ayu Yustina wrote in a research note on Monday.