Indonesia inflation eases in Aug, but pressure seen from fuel price hike

By Stefanno Sulaiman and Gayatri Suroyo

JAKARTA (Reuters) – Indonesia’s inflation rate eased more than expected in August, official data showed on Thursday, but economists said the rate is set to accelerate and more interest rate increases are likely amid expectation of a fuel price hike.

President Joko Widodo has been considering raising subsidised fuel prices to curb ballooning energy subsidies amid high global oil prices and a depreciating rupiah.

A drop in some food prices saw Indonesia’s inflation ease to 4.69% in August from 4.94% a month prior, data by Statistics Indonesia showed. A Reuters poll had expected a rate of 4.90% in August.

But the annual core inflation rate, which excludes government-controlled prices and volatile food prices, accelerated to 3.04% in August, the highest since Nov. 2019, from 2.86% in July.

The August rate was roughly in line with the 3% forecast in the poll.

Bank Indonesia (BI) is targeting inflation at between 2% to 4% for 2022 and 2023, a range Governor Perry Warjiyo has said was likely to be exceeded this and next year.

BI raised its benchmark policy rate by 25 basis points (bps) last month for the first time since 2018, in a move some economists believe was taken in anticipation of a fuel price hike.

Statistics Indonesia head, Margo Yuwono, said a fuel price hike could substantially increase price pressure as it would affect prices of other goods and services too.

Bank Mandiri’s Faisal Rachman said inflation could be heading to 6% this year assuming a 30% increase in the price of subsidised gasoline, compared with a forecast of 4.60% without a price hike.

“We see that BI still has space to hike (the benchmark rate) by up to 50 bps in the rest of 2022,” he said.

Bank Danamon economist Irman Faiz said producers were also under pressure to raise prices at consumer level due to rising costs. He expects a total of 75 bps rate hike by BI in the remainder of 2022.

BI’s next policy meeting is on Sept. 21 and 22.

Authorities have not given a time frame for when a fuel price hike would happen. The president on Thursday told media the government was still carefully calculating the impact of any price hike.

Lawmakers told Reuters last week the government was considering a 30% to 40% increase in subsidised fuel prices.

(Reporting by Stefanno Sulaiman, Gayatri Suroyo and Fransiska Nangoy; Editing by Martin Petty)