Indonesia's annual inflation rate eased in April from March as rice prices stabilised, which could give the central bank room to cut interest rates next week. The central bank left interest rates steady last month at 9.0 percent - following a string of nine cuts in a row - worried rising food prices could provoke inflation in the months ahead.
But since rice prices have stabilised, analysts say Bank Indonesia (BI) has room to cut its benchmark BI target rate at its next policy review on May 8. "I think it's a great time for BI to cut the BI rate. Inflation has fallen, the exchange rate is quite strong and there is no external pressure at the moment," Juniman, economist for Bank Internasional Indonesia, said.
The consumer price index (CPI) in April rose 6.29 percent from a year earlier, less than a 6.54 percent change expected in a Reuters poll and easing from March's annual rate of 6.52 percent.
Analysts said rice imports boosted domestic supply and eased upward pressure on inflation after flooding earlier this year pushed the staple's price higher. "In April alone, the price of rice fell by 5.16 percent from the previous month," Rusman Heriawan, the head of the central statistics bureau, told a news conference.
Raw food, which has a 24.7 percent weighting in the CPI, rose in April by 11.48 percent from a year earlier, easing from an 11.97 percent pace in March. "There is enough food supply, enough staple food and so prices have fallen, just like the year before," Roy Bahren, economist for Bank Niaga, told Reuters.
"For the whole of this year we see inflation to be relatively stable. We don't see too many pressures that may arise in the future except perhaps from oil prices. If oil prices suddenly change again."
The annual pace of core inflation, which excludes volatile items such as food, eased slightly to 5.74 percent in April from 5.87 percent in March and 5.98 percent in February. The central bank has cut the BI rate in the past year from a high of 12.75 percent as price pressures eased significantly following an inflation shock late in 2005.
Inflation has tumbled from double-digit rates in recent months as a sharp rise in fuel prices in late 2005 dropped out of the annual calculation. The annual inflation rate at the end of 2005 was 17.11 percent.
Other government data on Tuesday showed that exports in March rose around 23 percent from a year earlier to $9.19 billion, after a 12.43 percent rise in February. The rise was above expectations for a 16 percent increase.
Imports rose by around 23 percent from a year earlier to $5.44 billion. That compared with February's rise of 2.87 percent and was above a forecast for a 17 percent increase. That left a March trade surplus of $3.75 billion, higher than a forecast $3.59 billion.