Low inflation rate trend in December 2016

December 19, 2016, 10.28 AM  | Reporter: Adinda Ade Mustami
Low inflation rate trend in December 2016


JAKARTA. BI (the Central Bank) predicts that inflation rate in December 2016 will be lower than December 2015. Executive Director of Economic and Monetary Policy of BI Juda Agung said that the low inflation rate in the first week of December 2016 may reflect the inflation rate in the whole month. The results of weekly research conducted by BI show that the inflation rate in the first week of December was only 0.18%.

Usually, the inflation rate will increase ahead of Christmas and New Year festivities. However, the inflation rates during the third and fourth week of December this year are predicted to be not too high.

Based on the inflation rate in the first week of December, Juda projected that monthly inflation rate in December 2016 will be ranging at 0.5%-0.6%. This is equal with the inflation rate in December 2011, 2012, and 2013.

Aside of the increase in food price, inflation rate in December 2016 will be affected by the increase in transportation costs, including train and air plane tickets. If BI’s prediction is correct, the inflation rate in December 2016 is lower compared with the same month in 2015.

More stable in this month

The inflation rate in December 2014 was high. During that period, the inflation rate hit the level of 2.46%, as the results of the increase in oil price after the government removed the subsidy.

Juda is optimistic that the inflation rate at the end of this year will stand at lower limit of 4% of target inflation plus/minus 1%. The inflation rate at the end of this year will be at the range of 3%-3.2% on year on year (YoY) basis, or lower than the last year that was 3.35% (YoY).

Economist at Bank Permata Josua Pardede also predict that inflation rate in December 2016 will be around of 0.5%. According to Josua, the inflation rate in December 2016 will be affected by the pressures on the prices of several food commodities, particularly seasonings such as chili and shallot. The inflation in this month will also be affected by the increases in transportation costs ahead of Christmas and New Year festivities.

Nonetheless, the inflation rate in December 2016 will be more stable compared with the same period in the last year. This is mainly driven by rupiah exchange rate agains the US dollar in this mointh that is relatively more stable compared with December 2015.

Based on the reference exchange rate of Jakarta Interbank Spot Dollar Rate (JISDOR), rupiah exchange rate in December 2015 was ranging at the level of Rp 13,600-Rp 14,000 per US dollar. This had affected the core inflation rate in December 2015 that was relatively high at the level of 3.95% (YoY).

Meanwhile, during 1 December to the mid of December 2016, rupiah exchange rate stood at the level of Rp 13,200-Rp 13,500 per US dollar.
The more stable inflation rate in December 2016 was affected by the more solid administered prices. Josua predicts, the inflation rate at the end of 2016 will be ranging at 3.2%-3.3% on YoY basis.

(Muhammad Farid/translator)

Editor: Rizki Caturini

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