Aditya Suharmoko, Jakarta – Indonesia's inflation accelerated in May at its fastest pace in 20 months, after a hike in fuel prices drove the prices of other goods up, leaving the central bank with less room to stimulate economic growth.
The Central Statistics Agency (BPS) reported on Monday the consumer price index (CPI) had jumped in May by 10.38 percent from a year ago and 1.41 percent from April.
The jump in inflation came in the wake of an average 28.7 percent increase to fuel prices (on May 24) which was aimed at easing a burgeoning multi-billion dollar fuel subsidy allocated in the state budget.
The jump in price of low-octane Premium gasoline was stated by the BPS as the main factor behind the accelerating inflation aside from the transport, communications and financial services sector, which rose by 2.23 percent from April.
Prices of staple foods rose by 1.72 percent from April, while the housing, water, electricity, gas and fuels sector rose 1.58 percent.
The BPS surveyed 45 cities, all of which suffered inflation. Banda Aceh, Aceh, had the highest inflation rate of 3.78 percent in May, and Palangkaraya, Central Kalimantan, had the lowest at 0.19 percent.
"As the fuel price increase just came into effect in the third week of May, inflation is likely be higher in June because the first-round effects of the hike have not been fully accounted for," Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa said.
May inflation excluded the effects of higher transportation costs which would be calculated later in June, Purbaya said.
"Transportation costs will rise (this month). This will add to the plight," he said.
While the Land Transportation Agency (Organda) has not officially announced an increase to public transportation fares, many public transport owners have raised their fares independently to cope with soaring costs.
Inflationary pressure is likely to cap economic growth as it regularly fuels higher interest rates and undermines the public's purchasing power. Indonesia is eying to grow by between 6 and 6.4 percent this year.
Purbaya believed Bank Indonesia (BI) would raise its interest rate by "at least 25 basis points" to 8.75 percent during the upcoming board of governors meeting slated for Thursday.
BI raised its interest rate last month by 25 basis points, from 8 percent, to curb inflationary pressures due to the rise in global oil and commodity prices.
"A higher BI rate may hamper economic growth, but businesspeople can still expand their businesses if the rate is kept below 9.5 percent," Purbaya said.
BI officials have often hinted that the central bank may raise interest rates to cushion inflationary pressure.
State-owned Danareksa estimates inflation would reach 11.3 percent by the end of 2008, slightly above the government's expectation of 11.2 percent, and the central bank's 11.5 percent and 12.5 percent.