Indonesia wants lower inflation to boost competitiveness

[JAKARTA] Seeking to becoming more competitive, Indonesia wants to bring annual inflation lower, nearer to the rates managed by its Southeast Asian neighbours, authorities said on Wednesday.

Bank Indonesia Governor Agus Martowardojo told an official meeting on the country's high costs that the central bank aims to bring down the inflation rate to between 2.5-4.5 per cent in 2018, from a target of 3-5 per cent this year.

He said that Indonesia wants to lower inflation even further in future years, nearer to the levels seen in other Southeast Asian economies such as Malaysia, the Philippines, Singapore and Thailand.

Thailand and Singapore both reported deflation in April, with consumer prices down by 1 per cent and 0.5 per cent respectively from a year earlier, while annual inflation was 1.8 per cent in Malaysia and 2.2 per cent in the Philippines.

Much faster inflation in Southeast Asia's largest economy, at 6.8 per cent in April, means that the rupiah has to depreciate in nominal terms just so its real effective exchange rate remains stable and exports don't become uncompetitive.

Despite falling by about 6 per cent against the dollar so far this year, making it the worst-performing currency in Southeast Asia, analysts say the rupiah is still appreciating against the currencies of its trading partners after accounting for inflation.

Economists blame inefficient logistics, wage hikes, government price fixing and a drive for self-sufficiency, among other things, for the country's rapid inflation compared with its peers.

President Joko Widodo wants to improve the sprawling archipelago's creaking infrastructure to make transport cheaper and lower the cost of food and other goods.

In his first budget in February, he allocated 290 trillion rupiah (S$29.6 billion) for capital spending in 2015. "With infrastructure, we can push prices lower. Cheaper transportation means cheaper prices," Mr Widodo told governors and mayors on Wednesday.

BLOOMBERG