BI Sees Indonesias Core Inflation Sliding below 4% in 2023 First Half

Jakarta: Bank Indonesia (BI) has forecast that the country’s core inflation will fall below four percent year-on-year (yoy) in the first half instead of the third quarter of 2023 as projected earlier.
 
The earlier-than-projected decline in core inflation is based on BI’s policy to raise its key interest rate by 50 basis points (bps) this month to 4.75 percent from 4.25 percent a month ago.
 
Overall, the key interest rate has increased by 125 basis points (bps) this year.

“That way the economic stability will remain under control, the people’s purchasing power will improve, and private consumption will increase,” BI Governor Perry Warjiyo explained while announcing the results of the meeting of the central bank’s board of governors, which was accessed online from Jakarta on Thursday.
 
Core inflation in September 2022 remained low at 3.21 percent yoy along with the low subsequent impact of the fuel oil price adjustment and low inflationary pressure from the demand side.
 
Although core inflation will be lower than four percent in the first half of 2023, the BI governor predicted that the consumer price index (IHK) will likely be above 4 percent during the period due to the base effect of fuel price adjustment.
 
However, the base effect will be lower from month to month, he added.
 
Close coordination between fiscal and monetary authorities will make the second round effect of fuel price adjustment lower or faster than usual. Moreover, transport fares will also be lower than expected.
 
According to Warjiyo, the granting of incentives for controlling regional inflation, coupled with coordination between the central bank, the central government, and regional governments through the National Movement for Food Inflation Control (GNPIP) will help keep food inflation under control.
 
“We can also control imported inflation so that the expectation of inflation and core inflation will decline earlier in the first half of 2023 and will not exceed four percent,” he said.
 
Close synergy and collaboration would help mitigate the global impact properly, he added. As such, the inflation, the key interest rate hike, and the rupiah’s depreciation are not expected to be as high as the levels seen in other countries. 
 
 

(WAH)