Inflation Surges in October, BI Projects

TEMPO.CO, Jakarta - Bank Indonesia (BI) Governor Agus Martowardojo estimated that the inflation rate for October this year will be higher than the average price increase on the same month over the last five years, which is 0.16 percent. "From our survey for the second week [of October], the inflation rate reached 0.4 percent," he said on Friday.

Agus said that one of the factors triggering inflation is the price surge of red chili and cayenne pepper in a number of districts. Meanwhile, other food commodities experienced deflation.

"In general, inflation shows there is pressure. What we worry about is the El Nino. There is also the factor of Mount Sinabung's explosion. They all have impacts."

BI deputy governor Perry Warjiyo once said that October inflation is relatively high due to the electricity tariff hike, which accounts for 0.11 percent of inflation. Other contributors include the cost of education and housing.

Meanwhile, Bank Mandiri chief economist Destry Damayanti predicted October inflation to reach 0.3 to 0.4 percent. One of the factors that raised inflation in October was the rupiah correction, which triggered the increase in food prices. "This condition is also exacerbated by the dry season," he told Tempo.

Raden Pardede, deputy chairman of the National Economic Committee, said this year's inflation is strongly affected by food price fluctuations. The average inflation rate from year 2012 until August 2014 was 5.37 percent per year. Meanwhile, food inflation during that period reached 7.27 percent per year. "This figure exceeds the average inflation in transportation expenses, communications, and financial services," he said.

At first glance, Raden said, high food prices can be good for farmers. But the reality is different, because it actually triggered raised farmers' expenses. "Therefore, the government should maintain the stability of food prices," he said.

Agus said next year's monetary policy will focus on the risk of inflation due to the increased prices of subsidized fuel. In addition, he said, the central bank will pay attention to the current accounts because the improvement in the past few months was only the result of renegotiated mining contracts. "In general, we still need to watch the current accounts because there is a tendency that the US will raise its interest rates." 

TRI ARTINING PUTRI | MAYA NAWANGWULAN | GANGSAR PARIKESIT