Indonesia’s inflation slows to its weakest level in nearly seven years

PUBLISHED : Friday, 02 September, 2016, 7:58am
UPDATED : Friday, 02 September, 2016, 7:58am

Indonesia’s inflation slowed to the weakest in almost seven years and fell below the central bank’s target, bolstering the case for further interest-rate cuts.

Consumer price gains eased to 2.79 per cent last month from a year earlier, compared with economists’ 3.02 per cent estimate. Prices fell 0.02 per cent in August from the previous month, the statistics office said at a press conference in Jakarta on Thursday, adding that the annual rate was the lowest since December 2009.

Bank Indonesia still sees room to ease policy considering the economy has a manageable inflation rate and current-account deficit, Senior Deputy Governor Mirza Adityaswara said last week. The authority set its 2016 inflation target at 3 per cent to 5 per cent and expects consumer-price gains to end the year at around 3.5 per cent, he said.

“Easing inflation, along with stability in both the current account deficit and exchange rate, have created policy space for rate cuts,” said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. “The degree of easing will be dependent on the size of tax amnesty inflows.”

ANZ expects the central bank to lower its new benchmark rate by another 25 basis points to 5 per cent as soon as its September meeting, Ng said.

Indonesia’s 10-year bond yield slid four basis points to 7.07 per cent on Thursday afternoon in Jakarta, set for the biggest daily gain in three weeks. Shares fell, with the Jakarta Composite Index extending its drop to 0.9 per cent.

Falling airfares, inter-city transport costs and cheaper food were the biggest factors driving the monthly drop in prices, Sasmito Hadi Wibowo, a deputy at the national statistics office, said in Jakarta.