Back To The Past ( March Deflation )

Indonesia’s economy saw a deflation of consumer prices by 0.14 percent in March compared to the previous month, giving the central bank room to refrain from increasing interest rates when it meets
next week.

“The substantial cause of deflation in March 2010 was price decreases in national commodities,” Central Statistics Agency (BPS) chief Rusman Heriawan said Thursday at a conference at his office.
Rice, the staple food for more than 200 million Indonesians, saw its prices drop by close to 3 percent by the end of March as the harvest season started earlier that month.

The price of red chili, small chili and fresh fish declined 28.4 percent, 10.4 percent and 1.5 percent, and these changes had contributed 0.16 percent, 0.02 percent and 0.05 percent to deflation, Rusman said.

In regard to flooding in West Java’s Karawang, he said the disaster had not triggered inflation
despite the damage to many rice fields. The floods, which affected the area over the past two weeks, had reportedly submerged more than 800 hectares of rice fields across the regency.
Besides food products, decreasing prices were also seen in gold jewelry, sugarcane, household fuel and cellular phones, BPS said.

Gold jewelry prices were down 0.74 percent, contributing 0.02 percent to deflation, Rusman said.
Standard Chartered economist Eric A. Sugandi earlier said March may see deflation resulting from cheaper rice prices brought about by the harvest season, coupled with a stronger rupiah against the US dollar, reducing imported inflation.

The Finance Ministry has revised its inflation forecast to 5.7 percent in the proposed 2010 state budget revision, from 5 percent in the initial 2010 budget.
The ministry cited increasing commodity prices as the catalyst, in line with surging commodity prices globally, which could discourage capital inflows into the country.
Full-year inflation for 2009 was 2.78 percent.

The central bank estimates there will be no inflationary pressures in the first half of this year, which will provide it with more room to maintain interest rates.
Bank Indonesia’s (BI) benchmark interest rate has been kept at 6.5 percent for the seventh straight month, aiming to spur economic growth.

BI estimates the economy will expand between 5.5 percent and 6 percent this year, and further accelerate to between 6 and 6.5 percent in 2011.
Indonesia’s inflation “remains below the Bank Indonesia 6.5 percent policy rate,” David Cohen, an economist at Action Economics in Singapore, said as quoted by Bloomberg.
“Along with the firmness in the rupiah, it gives the central bank  some leeway for patience before tightening.”

The rupiah rose 0.3 percent to 9,067 per US dollar in Jakarta at 12 p.m. on Thursday. It has climbed 3.6 percent this year, the second-best performer among 10 Asian currencies outside Japan tracked by Bloomberg.

The Jakarta Composite index increased 1.8 percent.

Fifteen of 16 economists who took part in a Bloomberg News survey said next week the central bank would maintain its benchmark interest rate at 6.5 percent. One of the economists expected an increase to 6.75 percent.

(Source : The Jakarta Post.com)