March may see monthly deflation: Officials

Aditya Suharmoko , The Jakarta Post , Jakarta | Thu, 03/04/2010 11:41 AM | Business

March may see a month-to-month deflation because of a decline in staple food prices, particularly rice, coupled with the upcoming harvest season starting in the second week on the month, officials said.

Deflation may provide the central bank more room to maintain a low interest rate to help support growth. Bank Indonesia (BI) will hold its collegial meeting Thursday to determine the benchmark interest rate, which now stands at 6.5 percent.

“The price of rice has drastically dropped this week if we compare it with the price in February. The price of red chili, which is also a big component of the inflation indicator, has also dropped. Some staple foods contributing a lot to the indicator have also fallen in price,” Central Statistics Agency (BPS) Head Rusman Heriawan said Wednesday.

He said from the second to the fourth week some areas would start to harvest rice, contributing to a decline in price. Rice is the main staple food for 230 million Indonesians.

Agriculture Deputy Minister Bayu Krisnamurthi said Indonesia could harvest about 10 million tons of rice this month from 2.2 million hectares. He also said floods had yet to affect food production. “The damage is only 15 percent of the that experienced on average in the last five years,” he said.

Trade Minister Mari Elka Pangestu said the price of rice started to decline from mid-February, after an increase from January. “It has started to drop about 1.5 percent. We’re optimistic the price will stabilize and continue to decline,” she said.

According to the BPS, inflation in February rose 3.81 percent from a year earlier. On a monthly basis inflation in February rose 0.3 percent from January, slowing from 0.84 percent in January to December.

Indonesia experienced month-to-month deflation in three months last year — in January at 0.07percent, April at 0.31 percent and November at 0.03 percent. Full-year inflation in 2009 was only 2.78 percent.

BI predicts inflation this year will range from 4 percent to 6 percent as long as the global economy remains stable, Deputy Governor Hartadi A. Sarwono said last week.

Analysts have predicted that BI may delay the increase in its benchmark interest rate to the second half of this year if inflation remains slow.

A low BI rate is expected to help banks to cut their lending rates which is needed to ease borrowing costs so that businesses can expand, which it is hoped will eventually spur economic growth.