Indonesia inflation hits new 7-year high after fuel price hike

People wearing protective face masks shopping in Tanah Abang textile market ahead of Eid al-Fitr festival amid the coronavirus disease (COVID-19) outbreak in Jakarta, Indonesia, May 3, 2021. REUTERS/Ajeng Dinar Ulfiana/File photo

JAKARTA  – Indonesia’s inflation rate in September accelerated to its highest since October 2015 due to higher transportation costs following a fuel price hike, statistics bureau data showed on Monday.

The headline annual inflation rate rose to 5.95 percent in September, up from 4.69 percent in August, but came in slightly lower than a 6 percent rate expected in a Reuters poll.

The annual core inflation rate, which excludes government-controlled prices and volatile food prices, picked up pace in September to 3.21 percent, compared with 3.04 percent in August and 3.6 percent forecast by analysts.

“September’s inflation was mostly affected by the rise in fuel prices and inflation in transportation sector,” Margo Yuwono, head of Statistics Indonesia told reporters.

He warned that inflation could heat up further in October as a number of regions have not yet increased their transportation fares.

Indonesia raised subsidised fuel prices by about 30 percent in early September as the government moved to rein in ballooning subsidy bills.

Bank Indonesia (BI) in its September meeting hiked policy interest rates by 50 basis points in an effort to control inflation, which it expects will peak at slightly above 6 percent and core inflation at 4.6 percent by the year-end, compared to its target range of 2 percent to 4 percent.

Bank Danamon economist Irman Faiz said his bank has revised up its inflation outlook for end-2022 to 6.5 percent from previously 4.5 percent.

“On the policy front, we expect BI still has 100 bps of space to hike policy rate from the current level this year, as monetary policymakers have vowed to tame inflation down to their target range by 2H23,” he said.