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Indonesia's inflation stays in check, thanks to consistent monetary policy: BI

Jakarta Globe - May 3, 2024

Faisal Maliki Baskoro, Jakarta – Bank Indonesia (BI) has reported that inflation in April remained well within the central bank's target range, indicating the success of consistent monetary policy and close collaboration in inflation control between BI and both central and regional governments.

According to data from the Central Statistics Agency, inflation for April 2024 reached 0.25 percent on a monthly basis. Meanwhile, the year-on-year inflation rate stood at 3 percent, with a calendar year inflation of 1.19 percent.

"In the future, BI anticipates that inflation will continue to be managed within the target range of 2.5 percent, plus or minus 1 percent for the year 2024," said Fadjar Majardi, Director of BI's Communication Department, in an official statement received on Friday.

Core inflation for April 2024 was recorded at 0.29 percent month-to-month, slightly higher than the previous month's 0.23 percent. This increase was attributed to seasonal demand during the Eid al-Fitr holiday period and the rise in global commodity prices, particularly gold.

The rise in core inflation was mainly driven by increases in the prices of jewelry gold, cooking oil, and granulated sugar. Year-on-year, core inflation in April 2024 stood at 1.82 percent, up from the previous month's 1.77 percent.

In April 2024, the volatile food price group experienced a 0.31 percent month-to-month deflation, compared to the previous month's 2.16 percent inflation. This deflation was primarily caused by decreases in the prices of red chili, rice, chicken eggs, and bird's eye chili.

The decrease in food commodity prices was largely influenced by the ongoing harvest season, particularly for various chili and rice commodities. However, this deflation was partially offset by increases in the prices of shallots, tomatoes, and garlic. Year-on-year, the volatile food group experienced a 9.63 percent inflation rate, down from the previous month's 10.33 percent.

"Volatile food inflation is expected to decrease further as the harvest season progresses, supported by the collaborative efforts of the Central and Regional Inflation Control Team (TPIP and TPID) in various regions, thereby contributing to the stabilization of food prices," said Fadjar.

Meanwhile, Bank Danamon economist Irman Faiz predicted that general inflation would continue to slow down and by the end of the year would reach 2.9 percent, remaining within BI's target range. This moderation in inflation is due to the ongoing harvest season and the stability of the rupiah exchange rate.

"The ongoing harvest season over the next three months, coupled with the relatively small pass-through impact of the exchange rate on domestic inflation, will help to moderate inflation towards the end of the year," said Irman Faiz.

From a policy perspective, he believes that Bank Indonesia will maintain its policy rate at 6.25 percent as domestic inflation remains under control. However, he expects BI not to reduce its benchmark interest rate throughout 2024 to ensure the stability of the rupiah exchange rate.

"BI has the flexibility to make cuts after the Fed begins its rate-cutting cycle, which we expect to happen on December 24, with a 25 basis point reduction to 5.25 percent," Irman explained.

Source: https://jakartaglobe.id/business/indonesias-inflation-stays-in-check-thanks-to-consistent-monetary-policy-b