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Indonesia inflation picks up in November on subsidized fuel price hike

JAKARTA (Rambu Energy) – Indonesian inflation surged in November led by food prices after the government raised subsidized fuel prices in late October.

The Central Bureau of Statistic (BPS) data showed that the consumer price index (CPI) on month-on-month basis surged by 1.5 percent in November and picked up to 6.23 percent year-on-year, compared to 4.82 percent in October.

In late October, Indonesia’s new president Joko Widodo raised subsidized fuel prices by more than 30 percent, taking advantage of global oil price falling. The government expected to save more than US$8 billion next year from raising the fuel price. The government had spent hundreds of trillions of rupiah in the past years to subsidize fuel price.

The year-to-date inflation (Jan-Nov) now reached 5.75 percent. The core inflation in November on monthly basis increased by 0.40 percent, the year-to-date core inflation increased by 3.88 percent, while the year-on-year inflation (Nov 2014 against Nov 2013) stood at 4.21 percent

The BPS data showed that almost all products group increased in the month, with the exception of clothing products price.

Food products group surged by 2.15 percent on monthly basis or climbed by 8.0 percent year-on-year; prepared food, beverage, cigarette and tobacco increased by 0.71 percent from previous month; housing, electricity, water, gas and fuel rose by 0.49 percent; health up by 0.43 percent; education, recreation and sports edged up by 0.08 percent; transportation, communication and financial services surged by 4.29 percent from previous month and was up 6.6 percent year-on year. Clothing products went to the other direction, recording a declining of 0.08 percent.

The inflation is firmer than market expectation, which projects the inflation to rise by 6.12 percent year-on-year in the month.

Australian bank ANZ said in its daily report that it has earlier estimated the inflation in November to rise by 6.23 percent year-on-year, from 4.83 percent in October.

“Inflation came in firmer than expected, driven less so by the fuel price hike than by surprisingly higher food prices over the month,” ANZ economist for ASEAN and Pacific Daniel Wilson said in the report.
“A firmer-than-expected inflation print does not dissuade us from the view that policy rate cuts will be delivered in the second half of 2015,” he said.

Wilson noted that the transportation component of inflation came in line with their models, however food inflation was much stronger than expected. Core inflation was “controlled.

A number of Indonesian government officials have highlighted that this will occur in 2015. The ANZ economist initially expects that a fixed subsidy system could be applied in the middle of next year, however, now he expects the fixed subsidy system could be implemented as early as the revised State Budget in January-February 2015.

“It is a more sustainable and prudent way to price fuel as international fluctuations in oil prices will be absorbed by consumers rather than the government,” he said.

He said the longer oil prices remain below US$80 per barrel, the more likely a change will occur to the current pricing structure. Lower oil prices may also create the opportunity to completely remove subsidies.

“Looking ahead, we will be watching daily agricultural food price data and international oil prices closely. A continued decline in oil suggests that the move to a fixed subsidy system for price settingcould come sooner rather than later,” he said. (*)

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