JAKARTA: Indonesia’s inflation accelerated to its highest in seven years at 4.94 per cent in July, more than expected and well above the central bank’s target range, but core inflation remained within target, official data showed on Monday (Aug 1).
The July inflation rate was the highest since October, 2015. A Reuters poll had expected a rate of 4.82 per cent and June’s rate was 4.35 per cent.
The core inflation rate, which strips out government-controlled prices and volatile food prices, was roughly in line with expectations at 2.86 per cent, rising from 2.63 per cent a month prior.
Bank Indonesia’s target range for headline inflation is 2 per cent to 4 per cent, but policymakers have said they prefer to determine the pace of monetary tightening by looking at the core inflation rate.
The central bank has raised banks’ reserve requirement ratio, sold some of its bond holdings and reduced excess liquidity using its open market operations this year, in moves to unwind some of its COVID-19 pandemic stimulus.
It has kept its benchmark rate at a record low of 3.50 per cent since February 2021.
“Even as core inflation is under watch by policymakers, negative real rates and the need to anchor inflationary expectations might tilt the policy focus towards incremental hikes by late-3Q,” Radhika Rao, an economist with DBS said, noting that the benchmark rate has been below headline inflation rate.