Indonesia faces a risk of imported inflation from high oil prices, although capital flows and an appreciation of the rupiah currency could help cushion the impact, the country's central bank governor said on Monday.
Burhanuddin Abdullah told reporters that the impact depended on the extent and duration of high oil prices - currently trading just below record highs above $90 a barrel. Higher oil prices could push up the price of imported goods into Southeast Asia's largest economy and stall an interest rate cutting campaign the central bank started last year.
"Imported inflation becomes an issue that we need to think of because of how long and how large the impact will be. It depends on how long and how high oil prices are going to be," he said.
Consumer prices in October rose 6.88 percent from a year earlier, slightly above forecasts but slowing from September's 6.95 percent rise, which was the fastest this year, government data showed last week. The central bank expects annual consumer inflation to be within a 5-7 percent range by the end of the year.
"Imported inflation can be slightly negated if there are continuous capital inflows and an appreciation of the rupiah currency," Abdullah said, without specifying specific levels.
The Indonesian rupiah was trading at 9,170 per dollar on Monday, after shedding 1.5 percent in the past month as fears of mounting credit-related losses at financial firms hurt risk appetite and carry trades.
Rising oil prices have raised concerns among officials in Indonesia, Asia-Pacific's only member Opec, since about 30 percent of its oil product consumption has to be met by imports due to flagging output. Oil prices hit a record at $96.24 last week on concerns over tensions in the Middle East, and although they fell more than a dollar on Monday they were still trading at $94.77 a barrel.
Energy Minister Purnomo Sugiantoro said earlier on Monday that Indonesia's fuel subsidy bill may climb to 90 trillion rupiah ($9.86 billion) this year, but said the government had no plan to raise domestic subsidised fuel prices.
The government had allocated around 56 trillion rupiah in its 2007 budget for fuel subsidies assuming an average oil price of $60 a barrel, but subsidies in Indonesia are growing with international oil prices above $90 a barrel.
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