Jakarta – Indonesia posted higher inflation in August, the first increase in six months and a figure prompting speculation further interest rate cuts would be limited.
But the numbers failed to surprise most economists who echoed earlier doubts about the government's ability to reach this year's budget target of nine percent inflation, especially as the year-end celebrations approach.
Indonesia said on Monday year-on-year inflation rose to 10.60 percent in August from 10.05 percent a month earlier but still sharply down from a high of 15.13 percent in February.
"The higher inflation in August is largely due to an increase in the prices of some basic commodities and school fees," Sudarti Surbakti, head of the statistics bureau, told a news conference.
The bureau also said month-on-month inflation in August was 0.29 percent from 0.82 percent in July. Last year inflation was at 12.55 percent.
Economists also said it would be hard to lower inflation next year, particularly as the cash-strapped government plans to raise prices of basic necessities, although if the rupiah currency continued to strengthen this would help things.
"The sharp downtrend is unlikely to be sustainable particularly from year-end onward because of the seasonal factors but the government would still be able to reach around 10 percent figure by year-end," said economist Anton Gunawan of Citibank.
The rupiah , the region's best performer in 2002, has gained by around 17 percent against the dollar this year although several economists are now questioning whether it can go much higher.
Recent falls in Indonesia's inflation, among the highest in Asia and a politically sensitive subject in the world's fourth most populous country, have largely been due to the improving currency which has helped reduce prices of imported goods. But several experts have said any further strengthening in the local unit would likely be limited unless the government makes substantial economic reforms to help ease its punitive debt burden which almost equals its GDP.
The rupiah was quoted at around 8,850/8,860 against the dollar by Monday afternoon trade. The benchmark one-month central bank papers (SBI) stood at 14.35 percent last week, more than 300 basis points lower than 17.50 percent at the start of the year.
The latest trade data from the statistics bureau on Monday showed exports hitting $5.01 billion in July against $5.07 billion in June while imports stood at $2.60 billion from $2.41 billion in June.