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4.36 Percent Inflation Expected in 2017

The Governor of Bank Indonesia Agus Martowardojo projects year-on-year inflation rate in 2017 of 4.36 percent, an increase compared to late 2016 of 3.02 percent, mostly attributable to pressure from administered prices.

Agus said yesterday that the projection was based on the movement in the Customer Price Index (CPI) that was down in January to May 2017 and lower compared to January to April 2017.

“At the meeting of the Board of Governor in April, the year end inflation rate is predicted at 4.63 percent (year on year/yoy). In May 2017, it will drop to 4.36 percent (yoy),” Agus said.

Lower annual inflation forecast, according to Agus, was due to correction to inflation impacts of administered prices.

Bank Indonesia views that inflation pressure from administered prices, particularly raise in electricity price for 900 VA category will not be as high as predicted before.

Moreover, controls on food prices and other components in volatile foods category from January to May 2017 have convinced the central bank that inflation rate can be curbed.

Inflation due to volatile foods as of May 2017 stood at 3.26 percent (yoy), whereas inflation contributed by administered prices hit 9.14 percent (yoy).

“We will see the year-end inflation rate if the current forecast remains the same as has been targeted before,” he said.

Bank Indonesia expect to set inflation target through out this year in the range of 4 percent plus or minus 1 percentage points. Inflation control is also the reason behind the central bank’s decision to hold the benchmark 7-Day Reverse Repo Rate at 4.75 percent for the eight consecutive time on May 18.

Meanwhile, the government in the 2017 state budget (APBN) assume the inflation rate at four percent.

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