I Made Sentana, Jakarta – Indonesia's inflation rate of 2.01% in December was higher than analyst expectations of a 1.62% rate.
However, the December figure isn't raising concerns that price growth will get out of hand again next year like in 1998 when it soared as high as 77.63%.
The higher-than-expected December CPI figure didn't raise concerns that the current downtrend in interest rates will reverse direction in 2000.
Interest rate declines, however, are expected to slow next year as it's seen close to bottoming out, economists said. The benchmark interest rate of Bank Indonesia's one-month notes is currently at 12.19%.
Bank Indonesia Governor Sjahril Sabirin earlier this week told Dow Jones Newswires that he still saw room for interest rate to fall from the current level if 1999 inflation holds below 3%. "But, I don't think it [one-month interest rate] will fall below 10% next year," he added.
Higher-than-expected inflation in December signaled an improvement in Indonesia's consumer demand. The chairman of the Indonesian Central Bureau of Statistics Sugito said Friday that inflation in December was driven by demand instead of decreasing supply of goods and services.
The inflation rate was led by an increase in the price of foodstuffs – up 3.98% in December from November – due to Christmas festivities as well as because the Ramadhan fasting month fell early this month, Sugito said.
December's figure marks the third month of inflation following seven consecutive months of price declines, during which analysts raised fears about the economy being stuck in a deflationary trap.
Looking ahead, economists, however, agreed that it will be hard for the government to maintain an inflation rate of 3% again next year as the government plans to increase domestic fuel prices, electricity prices and civil servant salaries after April.
The government has also said it's seeking to increase domestic fuel prices by an average of 20% next year, and electricity costs by 35%. It, however, hasn't indicated by how much it will raise civil servant salaries.
Finance Minister Bambang Sudibyo said recently the government was determining the degree to which it can raise fuel and electricity prices along with civil servant salaries while keeping inflation at bay.
The government has said it's looking to keep inflation below 5% next year. But economists doubt the government can achieve that target.
Even Sugito said Friday he saw the inflation rate moving higher to between 6% and 9% next year. "The inflation rate will be at least 6% next year," Sugito said. "It could even reach 9%."