March 2008 Inflation Outlook: Lower, but to stay above 7 percent

12 03 2008

In February 2008, the consumer price index (CPI) rose 0.65% MoM (month-on-month), after increasing by 1.77% MoM in January 2008. As such, the YoY (year-on-year) inflation rate increased slightly from 7.36% in January to 7.40% in February.

Prices rose in nearly all components of the CPI, except for the housing component that fell 0.01% in February. The component that registered the biggest increase was still the foodstuffs component (up 1.59% MoM), followed by the medical care component (up 1.56% MoM), the processed foods component (up by 0.88% MoM), the clothing component (up 2.31% MoM), the education component (up 0.04% MoM), and the transportation component (up 0.02% MoM).

The February inflation figure was lower than most economists had expected (we had expected the February inflation figure to reach 0.76% MoM). It appears that the upward pressures on rice prices have subdued somewhat with the commencement of the rice harvesting period in February. At the same time, the government has also taken some concrete steps to supply cooking oil to the market by intensifying market operations. As such, the increases in cooking oil prices were not as much as expected before. In addition, the government’s program to encourage people to use gas rather than kerosene for household usage has also helped to reduce the problem of kerosene scarcity in some regions.

Looking ahead, we expect the harvesting of rice to put downward pressures on rice prices in March. And we also expect the government to continue its market operations. This should help ease upward pressures on basic foodstuff prices. Furthermore, the lifting of import fees on some basic foodstuffs in the near term will also help to lessen the upward pressures on basic foodstuff prices in the near future. In addition, the currently strong rupiah will also help to reduce the prices of imported goods. As such, we expect monthly inflation to be lower in March than in February.

Against this backdrop, we predict that inflation will reach 0.09% MoM in March 2008, with the YoY inflation rate falling slightly to 7.24%. For the whole of 2008, we expect inflation to reach 6.12%. Download Report