Indonesia’s inflation hits 7-year high on soaring food costs

Consumer prices in Indonesia rose by the fastest pace in nearly seven years in July, driven by stubbornly high food costs.

Inflation stood at 4.94 percent, the highest since October 2015, the national statistics agency said on Monday (Aug 1).

It beat the median forecast of 4.82 percent in a survey, and marked the second straight month that it has breached Bank Indonesia’s target of 2 percent to 4 percent.

This was largely driven by price increases for food items like red chilli, cooking oil and shallots amid unusual weather, like heavier rainfall, and supply chain bottlenecks. Volatile inflation accelerated further to 11.47 percent in July, an eight-year peak, according to data.

Meanwhile, core inflation, the metric watched by the central bank in deciding on its interest rate policy, crept up to 2.86 percent in July, still within the monetary authority’s target. Bank Indonesia kept borrowing costs at record lows last month as it expects inflation to remain manageable.

Bank Danamon Indonesia maintains its view that the policy rate will be raised this quarter as core inflation has continued to pick up since October and is testing the 3 percent threshold, said economist Wisnu Wardana.

“If monetary policymakers hold up to their judgment on core inflation, there is a good chance that (Bank Indonesia’s) key benchmark rate will remain unchanged this month,” he said.

SOURCE: NEWS AGENCIES