Inflation beat estimates by easing for a second month in March, thanks to a strong rice harvest driving down food prices, the government reported on Friday. Analysts say the decline will allow the central bank to hold interest rates steady.
The Central Statistics Agency (BPS) said consumer prices in Indonesia rose to an annualized 6.65 percent last month, down from a 6.84 percent rise in February. March inflation had been estimated to rise to 6.99 percent in a median forecast from economists surveyed by Bloomberg, while a Reuters’ poll had forseen a 6.97 percent advance.
“That the initial list of category breakdown highlighted by the statistics board to the domestic press looks a lot like a recipe sheet tells us that food prices are the main contributor to today’s downside surprise,” said Wellian Wiranto, an economist from HSBC in Singapore.
The price of raw foods, which accounts for 20 percent of the consumer price index, was up 13.6 percent in March from a year ago, but down 1.9 percent from February, thanks to falling prices for rice — a staple food for most Indonesians — and chilies, a key ingredient for the nation’s cuisines.
BPS reported that consumer prices fell 0.32 percent on a monthly basis in March from February — the biggest fall in four years.
BPS chief Rusman Heriawan said the government had kept inflation down by allowing two million tons of rice imports to address shortages and by delaying a ban on private vehicles’ use of subsidized fuel to keep consumer energy costs down.
Core inflation, which excludes the prices of volatile items such as food and fuel, ticked up to 4.45 percent year-on-year in March from 4.4 percent the month before.
“For a central bank that is still perceptibly keen on not hiking rates, BI will most likely choose to focus on the immediate relief of the tamer-than-expected headline inflation, and not on gathering risk factors or even the higher core inflation now,” said Wellian from HSBC.
He added that he expected Bank Indonesia to hold off on raising rates at its April 12 policy meeting and beyond.
The central bank kept its benchmark rate at 6.75 percent in March after hiking it by 25 basis points in February — the first increase since October 2008.
Enrico Tanuwidjaja, an economist at the OSK-DMG group, shared Wellian’s view for the upcoming central bank meeting, but said the key rate could go up to 7.25 percent in the first half due to rising core inflation.
“We maintain our forecast that the BI rate will be hiked to 7.25 percent by the first half of 2011, but judging from the softening of the headline inflation rate for March, they could stand pat next week in their April meeting,” Enrico said.
“Nevertheless, continued increases in core inflation could also render [BI] increasingly uncomfortable with keeping the interest rate level at 6.75 percent in the near term.”
The Central Statistics Agency (BPS) said consumer prices in Indonesia rose to an annualized 6.65 percent last month, down from a 6.84 percent rise in February. March inflation had been estimated to rise to 6.99 percent in a median forecast from economists surveyed by Bloomberg, while a Reuters’ poll had forseen a 6.97 percent advance.
“That the initial list of category breakdown highlighted by the statistics board to the domestic press looks a lot like a recipe sheet tells us that food prices are the main contributor to today’s downside surprise,” said Wellian Wiranto, an economist from HSBC in Singapore.
The price of raw foods, which accounts for 20 percent of the consumer price index, was up 13.6 percent in March from a year ago, but down 1.9 percent from February, thanks to falling prices for rice — a staple food for most Indonesians — and chilies, a key ingredient for the nation’s cuisines.
BPS reported that consumer prices fell 0.32 percent on a monthly basis in March from February — the biggest fall in four years.
BPS chief Rusman Heriawan said the government had kept inflation down by allowing two million tons of rice imports to address shortages and by delaying a ban on private vehicles’ use of subsidized fuel to keep consumer energy costs down.
Core inflation, which excludes the prices of volatile items such as food and fuel, ticked up to 4.45 percent year-on-year in March from 4.4 percent the month before.
“For a central bank that is still perceptibly keen on not hiking rates, BI will most likely choose to focus on the immediate relief of the tamer-than-expected headline inflation, and not on gathering risk factors or even the higher core inflation now,” said Wellian from HSBC.
He added that he expected Bank Indonesia to hold off on raising rates at its April 12 policy meeting and beyond.
The central bank kept its benchmark rate at 6.75 percent in March after hiking it by 25 basis points in February — the first increase since October 2008.
Enrico Tanuwidjaja, an economist at the OSK-DMG group, shared Wellian’s view for the upcoming central bank meeting, but said the key rate could go up to 7.25 percent in the first half due to rising core inflation.
“We maintain our forecast that the BI rate will be hiked to 7.25 percent by the first half of 2011, but judging from the softening of the headline inflation rate for March, they could stand pat next week in their April meeting,” Enrico said.
“Nevertheless, continued increases in core inflation could also render [BI] increasingly uncomfortable with keeping the interest rate level at 6.75 percent in the near term.”
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