Indonesia Inflation


Inflation reaches 20-month high in December

In December, consumer prices added 0.92% over the previous month. The figure came in above the 0.60% price rise observed in November as well as market expectations, which had seen prices rising 0.67%. The increase reflected higher prices for food (+2.81% month-on-month) and clothing (+1.08% mom). Due to the pronounced price increase, annual inflation jumped from 6.3% in November to 7.0% in December, the highest rate in 20 months. As a result, annual average inflation also rose from 4.8% in November to 5.1% in December. Despite the high inflation registered in December, the Central Bank left the benchmark rate unchanged at a record low 6.50% at its most recent meeting on 5 January. This mirrored the dovish approach the Bank has taken during its previous 17 meetings and was broadly expected by the market. Despite monetary authorities confirming that the global economic recovery remains on track, concerns about possible debt crisis spillovers in the Eurozone continue to weigh on the market. Although the Central Bank has repeatedly stated its preference to use other monetary instruments to control inflation and capital inflows, the Bank is likely to raise interest rates in the near future due to mounting inflationary pressure. The Central Bank set an inflation target of 5.0% 1% for this year and 4.5% 1% for 2012.


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