Economists Expect Indonesian Rice Harvest to Temper Inflation in March

Analysts expect annual inflation to ease to a range of 3.34 percent to 3.55 percent in March, from 3.81 percent in February, due to the rice harvest helping to stabilize food prices. Purbaya Yudhi Sadewa, chief economist at the state-run Danareksa Research Institute, predicted annual inflation of 3.46 percent in March, falling 0.12 of a percentage point month-on-month. “The price of rice and other staple foods are decreasing this month because March is the harvest season so we traditionally see deflation around this time,” Purbaya said. The price of rice has dropped in the past month, from Rp 6,300 per kilogram on March 1 to Rp 6,100 per kilogram on Thursday, Bloomberg reported. “Government reports suggest that rice prices have declined as the harvesting period approaches,” Helmi Arman and Anton Gunawan, economists at PT Bank Danamon, said in a research note. “International sugar prices also dropped by close to 20 percent month-on-month amid increased global production. This was probably followed to some extent by domestic sugar prices.” Bank Danamon said year-on-year inflation may decline to 3.34 percent, down 0.24 of a percentage point month-on-month. Eric Alexander Sugandi, an economist at Standard Chartered Bank Indonesia, forecast March inflation would be 3.5 percent year-on-year. “In addition, the rupiah’s appreciation helped contain imported inflation,” he said. Month-on-month inflation eased to 0.3 percent in February, down from 0.84 percent in January, bringing year-to-date inflation to 1.14 percent. Bank Indonesia has predicted relatively restrained inflation of 4 percent to 6 percent this year and has held its benchmark interest rate steady at 6.5 percent since last August. “With inflation like this, the central bank will not increase its interest rate soon,” Purbaya said. Eric also said he expected the central bank to keep rates on hold. “Inflation remains manageable in the short term and the current BI rate level is still supportive of the rupiah and GDP growth,” he said. The government has forecast full-year 2010 inflation of 5.7 percent. Finance Minister Sri Mulyani has also predicted that the harvest would lower prices.