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Indonesian inflation accelerates on higher food prices

[JAKARTA] Indonesia's inflation accelerated in May to its highest level in five months due to increased food prices, data showed Monday, as people stocked up before the Islamic holy month of Ramadan.

The consumer price index rose 7.15 per cent year-on-year, according to the official statistics agency, faster than expected and up from a 6.79 per cent increase in April. It was the highest level since 8.36 per cent in December.

Inflation in Southeast Asia's biggest economy has been edging up in recent months due mainly to higher fuel costs, after the government at the start of the year almost totally abolished huge subsidies and let petrol prices float with the market.

In May, however, the main driver was the higher cost of staples such as chicken and chilli as people stocked up ahead of the fasting month of Ramadan, which starts in mid-June.

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Food prices typically rise before Ramadan as people in the world's most populous Muslim-majority country buy more food to give away to the less fortunate during Islam's holiest month, and for elaborate fast-breaking meals.

Higher electricity prices also caused inflation to accelerate, said statistics agency chief Suryamin, who like many Indonesians goes by one name.

The accelerating inflation presents a dilemma for Bank Indonesia, the central bank. Some economists are calling for policymakers to cut the main rate from 7.50 per cent to boost slowing growth, but rising inflation limits their room for manoeuvre.

HSBC's purchasing managers index for Indonesia meanwhile painted a gloomy picture of the manufacturing sector. It rose slightly to 47.1 in May from 46.7 in April but was still below 50, indicating a contraction.

A reading above 50 signals an expansion.