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Indonesia posts disinflation in January on lower fuel price

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JAKARTA ( – Indonesia recorded disinflation in January following the government’s decision to cut fuel prices on the back of falling world crude oil price. Some economists are now expecting disinflation may still  continue in February.

The Central Bureau of Statistic (BPS) announced on Monday (Feb 2) that on annual basis the headline inflation fell to 6.96 percent year-on-year led by a moderation in transportation and communication inflation (7.4 percent in January versus 12.1 percent in December), while raw food prices also eased to 8.2 percent from 10.6 percent in previous month.

On monthly basis, Indonesia recorded disinflation of 0.24 percent in January from previous month. The monthly basis was the first since January 2009, BPS head Suryamin said.

The disinflation was in line with expectation of most economists projection after the government cut fuel prices on January 1, 2015.

“Disinflation dynamics have begun and we expect a more pronounced slowing in inflation over February,” ANZ Chief Economist, South Asia, ASEAN and Pacific Glenn Maguire said.

“The moderation in food prices was generally in line with the momentum of daily price data released by the Ministry of Agriculture,” Maguire said in the bank’s daily report.

Chili prices declined, contracting the most from food inflation, however rice contributed a small positive amount. The small gain in rice prices was in contrast to the roughly 1.7 percent month-on-month fall signalled by Ministry of Agriculture prices, which we still interpret as declining momentum in rice prices.

“Meat and its products added the most to food inflation, with fish and chicken prices now on our radar. Sequential housing and utility costs moderated to 0.8% month-on-month, from 1.4 percent, as scheduled increases in electricity price increases were delayed,” the ANZ economist said.

On a sequential basis, transportation costs fell in line with the cut in fuel prices, while the pace of food inflation eased. However, core inflation ticked higher with rising clothing and healthcare costs.

“Nevertheless, we continue to hold the view that inflation is set to decline sharply over the coming quarters, opening a window of opportunity for Bank Indonesia to ease policy in the second half of the year,” Maguire said.

“We expect a second consecutive month of negative month-on-month inflation in February. Inflation could fall below 6 percent, however we will need to see how our high frequency inflation tracking data trends over the month,” he said.

He noted that inflation expectations have declined, food momentum looks to have peaked, and fuel price adjustments will also drive declines.(*)

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