Peter Alford – Inflation topped 7 per cent in Indonesia last month, its highest level in 22 months. The figures underscore mounting concern throughout the region about runaway food prices and potential scarcities.
Consumer prices in Southeast Asia's biggest economy rose to 7.02 per cent from a year earlier, against expectations inflationary pressure would ease slightly.
The figures create a double quandary for Indonesia's central bank because they increase pressure for an interest rate rise, the first since August 2009.
Foreign investors want Bank Indonesia to act now to curb inflation, and have been voting with their portfolios by pulling out funds in the past month.
But the central bank pointed out yesterday that "core inflation", the consumer price index stripped of volatile food and fuel prices, actually fell last month to 4.18 per cent from December's 4.28 per cent.
The government is far more worried about scarcities driving food prices higher, which interest rate hikes will do nothing to contain and will increase the pain in vulnerable parts of the economy.
Food prices have been driven upwards in the past 12 months by a combination of regional shortages of export staples and the drastic effects on Indonesian crops of a longer and wetter than usual rainy season. Indonesia is importing rice in bulk for the first time since 2007.
Figures released last month showed the price of cheap rice had risen 22 per cent in a year, the prices of various types of chillies rose between 90 per cent and 314 per cent, and cooking oil was up almost 15 per cent.
The central government on Friday took an emergency decision to temporarily halt import duties on foreign supplies of rice, soybeans and wheat, to ease food prices and take the sting out of inflation.
The rice relief will last until next month, when supply problems will be alleviated by the main domestic harvest.
Duties on wheat, coming mainly from Australia, and soybeans will be suspended at least until the end of the year.
Bank Indonesia will decide whether or not to raise the official interest rate on Friday. Most analysts are betting on no increase.
South Korea also experienced inflationary pressures last month, the rate rising to 4.1 per cent, which was mainly blamed on an especially cold month and a foot-and-mouth disease outbreak restricting beef supplies.
Higher prices are a serious problem for the working class, President Lee Myung-bak said yesterday. So the government is considering lowering tariffs as well as taxes on things such as oil to help cover some of the difficulties.