Indonesia Inflation to Reach 8 Percent Amid Rupiah Depreciation

KATADATA ? Recent rupiah depreciation against US dollar will take its toll on inflation rate. Eric Sugandi, Economist at Standard Chartered, expects inflation to reach 8 percent this year amid rupiah depreciation.

According to him, 1 percent depreciation of rupiah/dollar exchange rate will increase inflation by 0.07 percent. ?Normally, (the depreciation) will be reflected in inflation rate next month,? said Eric during his economic outlook presentation in Jakarta, on Wednesday (12/17).

Recent fuel price hike will drive up inflation rate to 7.5 to 8 percent by the end of the year. The steep depreciation in rupiah will strike up inflation to 8 percent.  

According to Statistics Indonesia (BPS), inflation rate in November 2014 reached 1.5 percent. The impact of fuel price hike can be felt in the last 12 days of the month. According to historical data, inflation rate in November has always been below 0.5 percent.

November 2009 saw 0.03 percent deflation. A year later, in November 2010, inflation rate reached 0.6 percent. In November 2011 and 2012, inflation rates reached 0.34 percent and 0.07 percent, respectively. Last year, inflation rate in November reached 0.12 persen.

High inflation rate last month will drive up inflation rate this calendar year beyond the inflation target of 5.5 percent.

Aldian Taloputra, Economist at Bank Mandiri, said that we have yet to see the full impact of fuel price hike on inflation. It?s because inflation usually peaks in December reaching up to 2 percent. He expects inflation to reach 7.9 to 8 percent this year.

Inflation rate is expected to be lower next year if there will be no further fuel price hike and the oil prices stay around US$70 dollar per barrel. ?We expect inflation rate to reach 5 percent next year,? he said.