Indonesia: Inflation falls for the second month in a row after peaking in August
November 1, 2010
In October, consumer prices remained virtually flat, as they added only 0.06% over the previous month. The figure came in below both the 0.44% price rise observed in September and market expectations, which had seen prices rising 0.16%. The subdued monthly reading was the result of lower prices for non-prepared food as well as for transportation, communication and financial services, which were more than offset by higher prices across the board, in particular for clothing. Owing to the subdued monthly reading, annual inflation dropped for the second month in a row, falling from 5.8% in September to 5.7% in October. However, the trend is pointing upwards, as last year's low inflation figures are no longer included in the calculation of the, annual average inflation rate, pushing this figure to 4.5% (September: 4.2% year-on-year). Meanwhile, at its most recent meeting on 4 November, the Central Bank left the benchmark rate unchanged for the fifteenth consecutive meeting at 6.50%, in a decision expected by the market. Monetary authorities have repeatedly stated their preference to use other monetary variables to control both inflation and capital inflows. In fact, the Bank raised the reserve ratio for commercial banks from 5.0% to 8.0% in its September meeting. Furthermore, Central Bank Governor Darmin Nasution stated that the Bank is prepared to intervene in foreign currency markets to maintain the rupiah at between 8,900 to 9,300 IDR per USD, which the Bank perceives as the currency's ?fundamental? value. The Bank has an inflation target of 5% 1% for this and next year and is confident inflation will remain broadly contained between these limits.