Indonesia: Inflation eases in May
June 1, 2011
In May, consumer prices increased 0.12% over the previous month, contrasting the 0.31% decline observed in April. Prices were higher in all but one category of the CPI basket. In particular, prices in the housing category were up 0.25% month-on-month. On the other hand, food costs declined for a fourth consecutive month (May: -0.28% mom), which helped to mitigate the overall monthly price increase. Owing to the subdued price increase, annual inflation slowed from 6.2% in April to 6.0% in May, coming in a notch above market analyst expectations, which had seen inflation easing to 5.9%. However, annual average inflation continued to rise, increasing from 6.1% in April to 6.3% in May and continuing the upward trend that began in May 2010. Lower food prices and a stronger rupiah have helped to contain inflationary pressures in the economy. Nevertheless, policymakers must closely monitor inflation developments, as food prices are expected to rise from May onwards once the harvest period concludes. With inflation remaining subdued, the Central Bank decided to maintain the benchmark interest rate for a fourth straight month at its most recent meeting held on 9 June. Consequently, interest rates remain at 6.75%.