Indonesia yearend inflation target achievable despite high Aug CPI

Sep 3, 2007 - The government's yearend inflation target is still achievable despite the higher-than-expected inflation in August, Finance Minister Sri Mulyani Indrawati said Monday.

"The outlook for overall inflation is not going to be far away from the projection," she told reporters in parliament.

The government had initially projected a yearend inflation rate of 6.5 percent before recently revising it to 6.0 percent.

Indrawati said apart from trying to facilitate better distribution of goods, the government is also paying attention to the increase in the prices of kerosene and cooking oil.

But she did not elaborate.

Central Bureau of Statistics head Rusman Heriawan agrees with the view that the yearend inflation target is achievable. But the government must try to ensure that food supply is sufficient to meet rising demand, Heriawan said.

Food consumption normally picks up during the month-long Muslim Ramadhan fasting period which starts this month, as well as at the Eid-al Fitr celebrations next month.

"Year to date CPI now is at 3.58 percent. (This) means that the government needs to keep CPI at an average 0.60 percent over the next four months (to achieve the yearend target)," Heriawan said.

Consumer prices in August rose 0.75 percent from July and were up 6.51 percent from the previous year, driven by higher costs for education, fresh food and housing.

Analysts were expecting August CPI to have risen 6.15 to 6.4 percent from a year earlier, and to have advanced 0.3 to 0.63 percent from July.

Heriawan also blamed the cut in kerosene supply by PT Pertamina for the higher-than-expected August inflation.

Pertamina reduced kerosene supply as it began to replace the use of kerosene with liquefied petroleum gas (LPG).

Indonesia's poor families are still using heavily-subsidized kerosene for cooking.

Unlike other subsidized fuel products, the distribution of kerosene is undertaken by a third party, not by Pertamina. Therefore the price is still determined by supply and demand.