http://www.asianewsnet.net/home/news.php?id=16601&sec=3
The poor are the hardest hit
Editorial Desk
The Jakarta Post
Publication Date : 06-01-2011
Indonesia's December inflation, which surprised with a 6.96 per cent
increase in the consumer price index for 2010, up sharply from 2.78 per cent in
2009, should raise concerns, as poor families have been the hardest hit by the
price increases.
The hit to low income families was primarily caused by the steep rise in
the cost of rice that drove the inflation. Rice purchases usually consume 70
per cent of a poor family's income. Weather anomalies also continued to keep
the price of vegetables and spices on the rise.
Yet, more alarming is the persistently high risk of further food supply
disruptions due to weather irregularities, not only in Indonesia but in many
other countries as well, including Vietnam and Thailand, which are our main
rice import suppliers. The next few weeks will be especially precarious as rice
harvesting is to begin in March.
Adding to inflationary pressures is the soaring price of cooking oil due
to sharp hikes in crude palm oil prices on the international market, driven by
strong demand in China and India and short supplies of other vegetable oils
caused by weather woes.
Risks to inflation from energy-related prices will also increase as
rising coal and oil prices stoke utility and transport costs. Even though the
government has pledged to continue fuel subsidies for public transportation and
motorbikes, the plan to limit the sale of subsidized fuel for private cars
beginning in March will trigger stronger inflationary pressures.
All these trends will certainly increase inflation expectations. Even
though consumer price expectations are not generally accurate, future inflation
expectations are strongly influenced by current perceptions of inflation.
Current inflation perceptions, in turn, are influenced by the price of items
bought on a daily basis - food, gas and other basic needs. And, these
expectations might encourage higher production costs as workers demand higher
wages.
Bank Indonesia has so far opted for liquidity management tools in
preference to rate hikes in a bid to rein in inflation. But, if inflationary
pressures continue to increase, Bank Indonesia will have to increase its policy
rate, which has been stable at 6.5 per cent since August 2009.
The dilemma is that a tighter monetary policy will dampen the prospect of
high economic growth, and will affect the likelihood of achieving the 6.4 per
cent growth target for this year, with that the consequently damaging impact on
tax revenue, job creation and fiscal sustainability.
[Non-text portions of this message have been removed]
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