Aditya Suharmoko, Jakarta – Inflation eased in October, according to the Central Statistics Agency (BPS), providing leeway for the central bank to hold its interest rate steady after raising it for six straight months.
Monthly inflation stood at 0.45 percent in October, the lowest monthly rate recorded this year, bringing October's year-on-year rate to 11.77 percent, down from 12.14 percent in September.
"September was the peak of inflation as psychologically and economically consumer prices rose in the fasting month," BPS chairman Rusman Heriawan told a press briefing.
Indonesians spend more money during the fasting month and ahead of the Idul Fitri holiday, which took place on Oct. 1 and 2. Businesses usually take advantage of these trends to go for higher prices.
"In October, everyone was cooling down. Consumption was back to normal and prices were held at normal values," Rusman said.
Out of 66 cities surveyed by BPS, 53 cities had inflation and 13 cities had deflation. Palangkaraya in Central Kalimantan had the most inflation at 1.71 percent, while Ambon in Maluku had the most deflation at 1.63 percent.
BPS said fresh fish was the main contributor of October's inflation as higher awareness of fishermen on the implications of bad weather prompted a supply shortage.
Between January and October, inflation reached 10.96 percent, and with two months left to run in 2008, full-year inflation would likely be below 12 percent, Rusman said.
The central bank has predicted inflation will reach between 11.5 percent and 12.5 percent by the end of this year.
Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said that the easing inflation transmitted "a good message" to the central bank to hold its interest rate steady.
Bank Indonesia (BI) had raised its interest rate by 25 basis points from 8 percent in May to 9.5 percent in September to curb inflation, hoping it would fall again to single digits next year.
Businesses have demanded BI hold its interest rate, as banks, using the BI rate as their benchmark rate, tend to raise their borrowing rates pro rata, increasing costs for businesses seeking to expand.
If BI decides to maintain the rate, it "will be good news for businesses, the market and our economy", Purbaya said.
BI is scheduled to hold its collegial meeting on rates this coming Thursday.
Purbaya added BI would unlikely cut its rate, as demanded by some economists following the trend of central banks worldwide, as this would show signs of policy inconsistency.
Purbaya said that instead BI would most likely "hold it (steady at this rate) for the next three or four months."
BI has said a consistent monetary policy is needed to show that BI is safeguarding the economy.