Indonesia’s Inflation Slows to 13-Month Low of 7.92%

Bloomberg, By Aloysius Unditu

April 1 (Bloomberg) -- Indonesia’s inflation slowed to a 13-month low in March, increasing the likelihood of the central bank reducing interest rates this week.

Consumer prices rose 7.9 percent last month from a year earlier after gaining 8.6 percent in February, the Central Statistics Bureau said in Jakarta today. Economists expected a 7.96 percent increase.

Easing inflation may allow Bank Indonesia to cut borrowing costs for a fifth straight month to help stoke consumer demand in Southeast Asia’s largest economy as exports decline. The value of overseas sales may shrink as much as 20 percent this year, Trade Minister Mari Pangestu told Bloomberg News last week. Overseas sales plunged 32.8 percent in February.

“While Indonesia is not suffering the kind of sharp, protracted pull-back in demand experienced by some other economies in this downturn, the externally-led downturn has inevitably taken a toll and led to greater slack in the economy,” said Lim Su Sian, an economist at DBS Group Holdings Ltd. in Singapore. “We see no reason for Bank Indonesia to scrimp on policy accommodation.”

Indonesia’s economy may expand as little as 3 percent this year, the slowest in a decade, as exports slump and commodity prices plunge from record levels, Minister Pangestu said March 26. The Asian Development Bank yesterday forecast growth for the $433 billion economy to weaken to 3.6 percent in 2009 from 6.1 percent last year.

Interest Rates

Bank Indonesia, which cut its benchmark interest rate to 7.75 percent from 8.25 percent on March 4, next meets to decide on monetary policy on April 3.

Consumer prices rose 0.22 percent in March from a month earlier after increasing 0.21 percent in February. Core inflation, excluding fuel prices, was 7.15 percent compared with 7.42 percent in February.

Indonesia’s exports declined 32.8 percent in February from a year earlier to $7.08 billion, the statistics agency also said today. That was less than the median forecast of a 37.2 percent fall in a Bloomberg News survey and the 35.5 percent drop reported in January.

“The slowdown in the rate of export contraction is good news for the government,” said Juniman, senior economist at PT Bank Internasional Indonesia in Jakarta. “Considering that imports are falling faster than exports, the net effect on the economy is even better. We think exports may still drop about 17 percent by year end.”

Imports outside trade zones plunged 42 percent to $4.56 billion, the statistics agency said.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@bloomberg.net