Aditya Suharmoko, Jakarta – Soaring prices for food, energy and clothes caused inflation to rise at its fastest pace in 18 months in March, making it more difficult for the central bank to cut interest rates to spur economic growth.
The Central Statistics Agency (BPS) announced Tuesday consumer prices rose 0.95 percent in March, capping accumulated first-quarter inflation at 3.41 percent – already more than half of the government's full-year inflation target of 6.5 percent.
"It was a surprising figure. It will be hard for the government to achieve this year's inflation target," said Standard Chartered economist Fauzi Ichsan.
BPS deputy for the distribution of statistics, Ali Rosidi, said the main factor behind the stronger inflationary pressure was rising food prices, with the exception of rice, which saw a decline in prices due to government intervention.
"Global factors affected the surge in staple commodity prices. An increase in the prices will automatically push the prices of processed food higher as well," he said.
Global prices for some key commodities – wheat, soybeans, corn, palm oil, rice – have sharply increased to record highs this year, fueling people's anger across the globe.
According to the BPS, the highest contributor to inflation in March was staple foods, followed by the processed foods, beverages, cigarettes and tobacco group. After that was the housing, water, electricity, gas and fuel group, and clothing.
The BPS said cooking oil prices experienced the steepest rise by 0.14 percent, while rice prices dropped 0.17 percent.
The BPS conducted its survey in 45 cities nationwide, five of which suffered deflation. These five were Ambon, Sampit, Banda Aceh, Palu and Palangkaraya.
In response to the unexpected inflation figure, Coordinating Minister for the Economy Boediono said the government would work in the remaining eight months of the year to ease inflationary pressure as a result of higher global commodity prices. "We will work hard to stem inflation in the coming months," he said.
Finance Minister Sri Mulyani Indrawati said the soaring inflation was not a great surprise given that other countries were feeling the pinch of inflation, and the government remained upbeat economic growth would reach 6.3 percent this year.
The unexpectedly high inflation figure will likely force Bank Indonesia to put a break on reducing borrowing costs for companies to start up new businesses or for expansion, undermining the country's economic activities.
The central bank has cut its benchmark interest rate by 4.75 percentage points since May 2006 in a bid to fuel growth in the country's real sector, which is badly needed to help reduce the massive unemployment rate. "It will be difficult for the central bank to further cut interest rates," said Fauzi.
The central bank has not changed its benchmark rate, which now stands at 8 percent, since December last year. Bank Indonesia's board of governors is slated to meet early this month to decide whether to maintain or adjust the rate. (alf)