Inflation to jump to 3 percent in 2020 amid administered price hikes: Economists

Adrian Wail Akhlas and Riska Rahman

The Jakarta Post

 

Indonesia will see its inflation rate jump to more than 3 percent this year due to hikes in government-regulated prices, economists have said.

The country recorded an annual inflation rate of 2.68 percent in January, as chili, fish and tobacco prices increased, Statistics Indonesia (BPS) revealed on Monday. Meanwhile, lower prices of air tickets and fuel contributed to the month’s deflation.

“Going forward, we predict inflation in 2020 will remain stable within Bank Indonesia’s [BI] 2020 target range and reach 3.25 percent by the end of the year,” state-owned Bank Mandiri chief economist Andry Asmoro wrote in a research note on Monday.

“This relatively high inflation forecast compared to last year’s realization is mainly due to the possibility of some adjustments in administered prices,” he added.

The government sharply increased national health insurance premiums and the tobacco excise early this year, prompting concerns that such policies could trigger a rapid increase in inflation and weaken people’s purchasing power.

 

It raised the premium for the Health Care and Social Security Agency (BPJS Kesehatan) first-class service by 100 percent, more than doubled the cost for the second-class service and increased the premium for the third-class service by 64 percent. It also increased the cigarette excise by 23 percent on average and the retail price by 35 percent.

Securities firm Samuel Sekuritas research head Suria Dharma said on Dec. 19 that the hikes were expected to push the country’s inflation rate to 4.5 percent in 2020.

Last year’s annual consumer price index (CPI) stood at 2.72 percent, the lowest level in around two decades, as administered price inflation plunged to 0.51 percent from 3.36 percent in 2018.

In 2020, BI projects the inflation to reach between 2 and 4 percent while the government targets to record a CPI of 3.1 percent.

“Stable inflation may support the BI’s agenda to maintain an accommodative monetary policy in 2020,” Andry said.

BPS data showed that annual core inflation stood at 2.88 percent in January, lower than Reuters analysts’ expectation of 3 percent. Meanwhile, administered price and volatile food price inflation was recorded at 0.64 percent year-on-year (yoy) and 4.13 percent yoy, respectively.

Inflation rate (JP/-).
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“Going forward, central and regional governments should thoroughly watch the movement of foodstuff prices […] that historically are the biggest contributors to the inflation rate,” state-owned Bank Negara Indonesia (BNI) chief economist Ryan Kiryanto wrote in a note.

He projected this year’s inflation rate to reach around 3 percent yoy following hikes in several administered prices.

“Bank Indonesia should be consistent in maintaining its accommodative monetary policy,” Ryan added.

BI Governor Perry Warjiyo said last month that there was room for the central bank to further cut its benchmark interest rate this year amid benign inflation and a stable economic situation. The central bank cut its policy rate by 100 basis points in total in 2019 to help spur the country’s sluggish economic growth.

 

Meanwhile, BPS announced on Monday that it had begun applying a new inflation calculation formula in January this year that incorporates prices of 98 new commodities, including cellphone accessories and Grab and Gojek prices, because of their significant growth. At the same time, it has eliminated several items that are no longer relevant, such as calculators.

Therefore, January’s inflation figure cannot be compared with December's inflation rate of 2.72 percent as it was not “an apple-to-apple comparison”, BPS head Suhariyanto said in a press conference in Jakarta on Monday.

“However, the change did not significantly affect this year's inflation rate compared to the previous years,” he added.