Aditya Suharmoko, Jakarta – Inflation in January accelerated to a seven-month high with rising commodity and food prices, without provoking worry that the central bank should raise its policy rate, analysts said.
Inflation rose 3.72 percent in January from a year earlier, the Central Statistics Agency (BPS) reported Monday. It rose 0.84 percent from December amid rising prices of staple and processed foods.
Rice, sugar and cooking oil were among the staple foods whose prices increased last month, the BPS said. Rice is the main staple food for about 230 million Indonesians.
The increase was above the consensus prediction, analysts said. "These numbers basically tell us that inflation is back again. However, we don't think this represents a serious concern yet," Bank Danamon economist Helmi Arman said.
In December last year inflation rose 2.78 percent from a year earlier, which was the lowest increase in a decade, according to the BPS.
Low inflation has provided Bank Indonesia (BI) room to maintain its policy rate at 6.5 percent. BI cut its rate by 25 basis points to 6.5 percent in August and has kept it ever since.
"We don't think today's inflation data warrants any change in our 2010 inflation forecast of 5.3 percent, nor to our call that the BI rate be held at 6.5 percent throughout most, if not the whole of the year," said Helmi, adding that rate increases might start in 2011.
"However we probably should watch the tone of BI's monetary policy statements, as they may start to lessen their dovish stance and start reacknowledging the threat of inflation," he added. Citi analyst Johanna Chua predicted BI might begin increasing its policy rate in the second half of the year as inflation picks up, especially with a rise in electricity prices.
The government has delayed an expected increase in electricity tariffs, without specifying timing.
Inflation is predicted to pick up as the global economy begins recovery, which will see Asian central banks starting to raise their policy rates.
Indonesia's economy last year managed to cope well with the global financial crisis, maintaining an estimated growth of 4.3 percent. The BPS will announce the official growth figure on Feb. 10.
BI predicted the economy might expand 5.2 percent this year. The central bank will hold its collegial meeting to determine its monetary policy on Thursday.
Barclays Capital warned that commodity prices would continue to surge in line with increasing world demand.
"Looking ahead, we think that risks to food-related prices remain biased to the upside, in line with international food commodity indices," it said. President Susilo Bambang Yudhoyono said last week Indonesia should maintain self-sufficiency in rice and corn, while achieving self-sufficiency in sugar.