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Inflation returns to BI’s target range in May

Tan KW
Publish date: Tue, 06 Jun 2023, 10:18 AM
Tan KW
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JAKARTA: Indonesia’s annual inflation rate eased to 4% in May, matching the upper end of the central bank’s target range earlier than expected, according to data from the statistics bureau.

Inflation in South-East Asia’s largest economy had been above Bank Indonesia’s (BI) 2% to 4% target range since June 2022 due to pressures from rising global food and energy prices.

Peaking near 6% in September, inflation has since eased gradually after the central bank hiked interest rates by a total of 225 basis points.

A Reuters poll of analysts had expected May inflation at 4.22%. In April, the rate was 4.33%.

The core inflation rate, which strips out government-controlled and volatile food prices, eased to 2.66% in May from 2.83% a month before.

The poll had expected 2.8%.

At BI’s last policy meeting, it had expected headline inflation to ease to within its target in the third quarter, with core inflation seen staying within the same target band throughout the year.

Pudji Ismartini, deputy head of the statistics bureau, attributed slowing inflation to declining airfares after the Eid al-Fitr festivities.

“Indonesia’s inflation continues to surprise on the downside as seasonal festive effects fade and administrative measures help to calm food cost,” Radhika Rao, DBS Bank economist said.

Rao expected BI to maintain a neutral policy stance, but to pivot towards easing in the third quarter, citing the trajectory of inflation and BI’s “constructive view on the currency”.

Speaking separately at a parliamentary hearing, BI governor Perry Warjiyo said the bank’s interest rate policy would be guided by inflation developments.

He also reiterated that he believed the rupiah would strengthen further against the US dollar through to 2024 due to improving fundamentals.

BI will lower its inflation target next year to a 1.5% to 3.5% range.

 - Reuters

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