Grace Sihombing and Claire Jiao – Consumer prices in Indonesia rose by the fastest pace in nearly seven years in July, driven by stubbornly high food costs.
Inflation stood at 4.94%, the highest since October 2015, the national statistics agency said on Monday. It beat the median forecast of 4.82% in a Bloomberg survey of analysts, and marked the second straight month that it's breached Bank Indonesia's 2%-4% target.
This was largely driven by price increases for food items like red chili, cooking oil and shallots amid unusual weather like heavier rainfall and supply chain bottlenecks. Volatile inflation accelerated further to 11.47% in July, an eight-year peak, according to data compiled by Bloomberg.
Meanwhile core inflation – the metric watched by the central bank in deciding on its interest-rate policy – crept up to 2.86% in July, still within the monetary authority's target. Bank Indonesia kept borrowing costs at record lows last month as it expects inflation to remain manageable.
PT Bank Danamon Indonesia maintains its view that the policy rate will be raised this quarter as core inflation has continued to pick up since October and is testing the 3% threshold, said economist Wisnu Wardana. Still, "if monetary policymakers hold up to their judgment on core inflation, there's a good chance that BI's key benchmark rate will remain unchanged this month."