JAKARTA, Aug 1 (Bernama): Indonesia’s inflation rate increased 4.94 per cent year-on-year (y-o-y) in July 2022 against 1.52 per cent in the same month last year, the highest since October 2015.
Statistics Indonesia (BPS) attributed the higher rate to a 1.16 per cent rise in food, drinks and tobacco, led primarily by red chilli, cooking oil, shallot and cigarettes.
Transport went up 1.13 per cent, while housing, water, electricity, and household fuel rose 0.47 per cent.
In a statement, BPS said the global food and energy crisis has put pressure on inflation domestically throughout 2022.
The condition is still relatively well maintained amid stable economic fundamentals, it said, adding that the rate is relatively lower compared to some other G20 countries.
Meanwhile, RHB Investment Bank Bhd maintains Indonesia's inflation forecast at 3.5 per cent this year, albeit with upside risks, in line with the official forecast of 3.0 per cent.
The bank said headline inflation will stay above the 4.0 per cent into November 2022, and expects core inflation to speed up further in the third quarter before dissipating in the fourth quarter.
In a note, it calls for Bank Indonesia to lift the policy rate to 4.0 per cent in the second half of 2022, in view of the higher inflationary pressures seen of late.
The central bank may start its first 25 basis points (bps) bps lift-off in September 2022 and another 25 bps hike in December 2022, the bank said.
Reuters, reported, that the July core inflation rate, which strips out government-controlled prices and volatile food prices, was roughly in line with expectations at 2.86%, rising from 2.63% a month prior.
Bank Indonesia's (BI) target range for headline inflation is 2% to 4%, but policymakers have said they prefer to determine the pace of monetary tightening by looking at the core inflation rate.
The central bank has raised banks' reserve requirement ratio, sold some of its bond holdings and reduced excess liquidity using its open market operations this year, in moves to unwind some of its COVID-19 pandemic stimulus.
It has kept its benchmark rate at a record low of 3.50% since February 2021, making it one of the world's least hawkish central banks. Indonesia's inflation had been relatively under control because of heavy government subsidies for energy.
Economists said a rate hike is imminent.
"Even as core inflation is under watch by policymakers, negative real rates and the need to anchor inflationary expectations might tilt the policy focus towards incremental hikes by late-3Q," Radhika Rao, an economist with DBS said.
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David Sumual, chief economist with one of Indonesia's biggest lenders BCA, said BI may act when it meets on Aug. 22-23 with a 25 or 50 basis point rate hike.
"Headline inflation is almost 5%, it looks on course to pass 5% this year. So I think there should be an adjustment," he said.
Maybank Indonesia economist Myrdal Gunarto said BI could still keep interest rates unchanged this month, as pressure on the rupiah exchange rate has eased, but it should raise rates in September to try to narrow the gap between Indonesian and US interest rates.
