Muhamad Al Azhari – Annual inflation is expected to have eased further in July after falling to its lowest level in nine years in June, on the back of falling food prices and also due to the dissipation of the inflationary effects of high fuel prices last year, according to local and foreign economists surveyed by the Jakarta Globe.

A median forecast of nine economists surveyed by the Globe indicated inflation in July is expected to have risen 2.7 percent from the year-earlier period, following a 3.65 percent rise in June. The July figures are due to be released by the Central Statistics Bureau on Monday.

"This is mostly a consequence of the high-base effect of last year's fuel price hikes, which has led to negative inflation in the transport component of the consumer price index," said Gundy Cahyadi, a Singapore-based economist with IDEAglobal.

The consumer price index is a key gauge of inflation that measures the average prices of goods and services purchased by households. Last month, year-on-year inflation dropped sharply, also as a result of the high-base effect caused by the fuel price increase in May 2008.

"It should be noted, however, that inflation has come down rather significantly in the food component. With ample supply in the markets, and with global commodities still far off their highs, we expect little pressure from this area, at least until the end of the year," Gundy said.

Gundy said the effects of the El Nino weather phenomenon were unlikely to affect food supplies much, especially with the government storing excess supplies from the abundant harvest earlier in the year.

He predicted that full-year inflation would come in comfortably below 5 percent, in line with the central bank's forecast.

But Eric Alexander Sugandi, a Jakarta-based economist with Standard Chartered Bank, said month-on-month inflation was likely to be slightly higher in July at 0.40 percent, compared with 0.11 percent in June, "in part due to the beginning of the school year, which increases demand for uniforms, books and stationery."

Lim Su Sian, a Singapore-based economist at DBS bank, said Bank Indonesia was expected to take advantage of "this low-inflation environment to take its policy rate a little lower." She said she was looking for a cut of 25 basis points in its key interest rate at next week's policy meeting, which would bring it down to 6.5 percent.

In an effort to boost the economy, Bank Indonesia has trimmed its key rate by a total of 275 basis points since December, bringing it to 6.75 percent in July, the lowest level since the benchmark rate was introduced in July 2005.

"I see this more as an insurance cut," Lim said. "In the current environment, the economy would do just fine without further easing, but one more rate cut would not hurt. I think this will be the last rate cut for the year."