JAKARTA- Indonesia’s annual inflation rate slowed to 2.28 percent in September, roughly in line with a market forecast, official data showed on Monday, near the lower end of the central bank’s target range.
A Reuters poll of economists had expected a rate of 2.20 percent following August’s inflation rate of 3.27 percent . The September inflation rate was the lowest since February 2022.
Core inflation also eased to 2.00 percent from 2.18 percent a month before, compared with the poll’s prediction of 2.08 percent .
Inflation in Southeast Asia’s largest economy peaked near 6 percent in September of 2022 after the government raised subsidized fuel prices. That bump last year left prices at a high base that contributed to the low reading for the month just ended.
To control inflationary pressures, the central bank raised interest rates by a total of 225 basis points between January and August.
Bank Indonesia’s (BI) inflation target is a range of 2 percent to 4 percent for this year. The target will be lowered to 1.5 percent to 3.5 percent next year.
“The sharp deceleration in Indonesia’s September inflation was along expected lines and driven purely by base effects,” said DBS Bank economist Radhika Rao.
“The BI will take comfort from easing inflation,” she said, although Rao expected no immediate policy easing due to the rupiah’s weakness against the US dollar.
Despite headline inflation staying within target, annual rice inflation accelerated in September, with retail prices rising 18.44 percent from a year earlier, faster than in August.
At rice milling and wholesale levels, prices were up 27.4 percent and 21 percent , respectively, on a yearly basis.
The statistics bureau blamed the rising prices for rice – a food staple for most of Indonesia’s population of 270 million – on tight supplies as drier-than-usual weather hurt harvests across the country.
Indonesia’s economic growth in the second quarter accelerated unexpectedly to its highest rate in three quarters, shored up by strong household and government spending, even as exports weakened with falling commodity prices.
Some economists still expect activity to slow in the second half of the year, with exports likely to keep falling due to weaker global demand and businesses potentially delaying investments ahead of general elections due in February 2024.
The government plans to boost spending this quarter to reach its 5.3 percent growth target for the year, chief economic minister Airlangga Hartarto told reporters.
Separately, the finance ministry is projecting that GDP growth will be around 5.1 percent this year, highlighting risks of global economic slowdown impacting exports.
Southeast Asia’s biggest economy expanded 5.17 percent in the April-June quarter from the same period a year earlier, Statistics Indonesia data showed, outpacing the 4.93 percent growth predicted by economists polled by Reuters. First-quarter growth was revised up slightly to 5.04 percent.
Despite Indonesia’s interest rate hikes of 225 basis points from August 2022 to January 2023, household consumption, which makes up over half of GDP, expanded 5.23 percent on a yearly basis last quarter, the quickest pace since the third quarter of 2022.
That was due to rising household spending for the Muslim fasting month and Eid al-Fitr festivities in late April and school holidays in June, the statistics bureau said.
Growth in investment and government spending also more than doubled to 4.63 percent and 10.62 percent, respectively, as the government expedited construction of roads and irrigation systems ahead of the end of President Joko Widodo’s final term in 2024.
Meanwhile, exports contracted 2.75 percent in the second quarter on a yearly basis, in stark contrast to last quarter’s growth of more than 10 percent.
Myrdal Gunarto, economist with Maybank Indonesia, said he might raise his bank’s full-year 2023 GDP growth outlook of 5.05 percent, but described the second quarter data as “a sign that economic activities had peaked”. – Reuters
