Indonesia’s March inflation eases, but Iran war means price risks loom

[JAKARTA] Indonesia’s inflation returned to within the central bank’s target range for the first time in three months in March, but analysts said that the conflict in the Middle East was likely to drive up consumer prices in coming months.

The country’s annual inflation eased to 3.48 per cent in March, data by Statistics Indonesia showed on Wednesday (Apr 1), lower than the median forecast of 3.6 per cent in a Reuters poll and the February rate of 4.76 per cent, which was the highest in nearly three years.

Wednesday’s data release also included the international trade position for February, which showed the monthly trade surplus was below expectations.

Price pressures eased in March compared with the previous month because a “low-base effect” from last year’s government programme to provide electricity tariff discounts started to fade.

The March rate returned to Indonesia’s central bank target range of 1.5 per cent to 3.5 per cent, but consumer prices face external inflationary pressures as war in the Middle East has driven up energy prices and the Indonesian rupiah has weakened, analysts said.

The war – which began with US and Israeli attacks on Iran at the end of February – if sustained could “shut the door for policy rate cut,” Bank Permata economist Faisal Rachman said. He said that if the government sustained fuel price subsidies, inflation could be at around 2.72 per cent at the end of this year, but if fuel prices are raised, inflation could overshoot the central bank’s 3.5 per cent upper-end target range.

The rupiah on Wednesday sank to a historic low of 17,026 per dollar. Bank Indonesia kept its policy rates unchanged in March to bolster the rupiah.

Core inflation, which strips out volatile food and administered prices, also eased to 2.52 per cent in March from 2.63 per cent in February.

Meanwhile, South-east Asia’s largest economy reported a US$1.28 billion trade surplus in February, widening from January’s surplus of around US$960 million, but below the median forecast of a US$1.55 billion surplus in a Reuters poll of economists. The February trade figures pre-date the war in the Middle East that led to a record monthly increase in international oil prices for March.

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In February, exports rose 1.01 per cent on a yearly basis to US$22.17 billion, below a forecast of a 3.2 per cent rise in the poll, as shipments of nickel products and palm oil rose, while coal exports dropped.

Imports were up 10.85 per cent to US$20.89 billion, compared with an expected rise of 11.2 per cent in the poll. REUTERS