Fuel hike spurs inflation

JAKARTA - Indonesia's inflation rate accelerated last month at its fastest pace in at least three years after the Government more than doubled fuel prices on October 1.

Consumer prices in Southeast Asia's largest economy climbed 17.9 per cent in October from a year earlier after a 9.1 per cent rise in September, the Central Statistics Bureau said.

That's faster than the median forecast of 13.3 per cent in a Bloomberg survey.

BP Transjakarta Busway, which runs buses on dedicated lanes, raised fares by 40 per cent, while PT Blue Bird, a Jakarta-based taxi company, increased rates by 25 per cent after President Susilo Bambang Yudhoyono's Government more than doubled fuel prices to keep the budget deficit at about 0.9 per cent of gross domestic product.

Rising prices may force Bank Indonesia to raise interest rates, said economist Lee Heng Guie.

"I expect the central bank to raise rates by another 25 basis points by the end of the year," Lee, an economist at CIMB Securities in Kuala Lumpur, said before the announcement yesterday.

"A higher interest rate and rising inflation will slow down household consumption and we still have to watch out for the bird flu, which could slow down spending further."

Indonesia's central bank on October 24 raised its 2005 inflation estimate to 14 per cent from 12 per cent, its second revision this month.

Bank Indonesia raised its key rate used as a reference for its bill sales a full-point rise to 11 per cent on October 4, the fourth increase in nine weeks. The central bank's one-month bill, known as the Sertifikat Bank Indonesia, or SBI, last yielded 11 per cent in May 2003.

The currency has risen 6.2 per cent from a four-year low in August after the Government pledged to raise fuel prices and the central bank increased interest rates. The rupiah has fallen 8.8 per cent this year, making it the second-worst performing among 15 Asia-Pacific currencies tracked by Bloomberg.

Yudhoyono's Government almost tripled kerosene prices and more than doubled diesel tariffs on October 1. Petrol prices rose by 88 per cent. The move will help the Government cap subsidies this year at 89.2 trillion rupiah ($12.4 billion).

Indonesia's inflation rate reached a 26-month high of 8.8 per cent in March after the Government raised fuel prices by an average 29 per cent to cut subsidies.

October's 17.9 per cent inflation rate was the highest since the statistical office changed its base year for the compilation of the consumer price index to 2002.

A separate report showed that exports rose to US$7.28 billion ($10.39 billion) in September, from US$7.24 billion a year earlier. Imports rose to US$4.9 billion, from US$4.2 billion.

The trade surplus widened to US$2.38 billion in September from US$1.63 billion in August.

- BLOOMBERG