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Indonesia's inflation rises above 3 percent as Ramadan begins

Jakarta Post - April 2, 2024

Yohana Belinda, Jakarta – Inflation rose to 3.05 percent year-on-year (yoy) in March, following continued increases in key food prices across the country amid the Ramadan festive period, Statistics Indonesia (BPS) said on Monday.

March's figure is the first time since September last year that inflation has risen above 3 percent. However, it remains within Bank Indonesia's (BI) target of between 1.5 and 3.5 percent this year.

Acting BPS head Amalia Adininggar Widyasanti said March's inflation marked a jump from 2.8 percent yoy recorded in the previous month. She attributed the trend largely due to rises in rice, chicken and chili pepper prices amid increased demand during Ramadan, which began on March 12.

"The monthly inflation rate in March 2024 is relatively higher than the previous month and the same month last year," Amalia said.

On a monthly basis, eggs also contributed significantly to inflation this March along with chicken and rice.

Amalia added that the delay in the planting season had led to an increase in rice prices, citing other factors such as El Nino weather phenomenon and restrictions on rice exports in the global market since last year.

Overall, BPS noted that volatile food prices saw a 10.3 percent yoy increase this March, continuing a 8.47 percent yoy jump recorded in the preceding month.

The trend moved further away from BI's target, following the central bank's intention to keep the annual increase for volatile food prices below 5 percent this year.

On top of food commodities, BPS data show tobacco and gold became the fourth- and fifth-largest inflation contributor in March.

Economist with private lender Danamon, Irman Faiz, saw the surge in inflation as temporary, as he attributed it to seasonal demand picking up during Ramadan and ahead of Idul Fitri.

"Price pressures might slow down in April, coinciding with the upcoming harvest season," Irman said in a statement on Monday, adding that he expected inflation to linger around 3 percent yoy from March to April.

The lender projects Indonesia will maintain its inflation at 2.9 percent yoy at the end of this year, considering the sustained moderation in input costs, which should keep core inflation benign throughout the year, Irman said.

Andry Asmoro, chief economist of state-owned lender Bank Mandiri pointed out that usually transportation contributed to higher inflation during Ramadan, but in March, this sector only saw 0.99 percent yoy inflation, as air fares declined.

Private lender Bank Permata's chief economist, Josua Pardede, said in a statement on Monday that there could be a risk that the short-term high inflation may be prolonged.

It is expected to ease gradually as seasonal demand wanes in May and the impact of El Nino subsides, but more inflationary pressure may arise in the second half of this year.

"On the other hand, there could be more pressure coming from the implementation of excise on sweetened drinks and plastics," Josua said.

Josua projects inflation to hover at 3.08 percent yoy at the end of this year, up from the 2.81 percent yoy recorded last year.

Analysts expect Indonesian inflation to remain within BI's target of between 1.5 and 3.5 percent this year, which the central bank has revised down from between 2 and 4 percent in the past few years.

This is believed to give BI more room to consider lowering its interest rate in the second half this year, the rate has been hovering at 6 percent since October last year.

However, Danamon's Irman said BI would slash its interest rate only if the United States Federal Reserve made a cut, quite apart from considering domestic macroeconomics.

Source: https://asianews.network/indonesias-inflation-rises-above-3-percent-as-ramadan-begins