Year-ender: COMMODITY PRICES MAY RAISE INFLATION RATE IN 2010 By Andi Abdussalam

Jakarta, Dec 26 (ANTARA) - Commodity prices which are expected to increase next year are likely to raise the inflation rate from about three percent this year to about five percent in 2010.

"The prices of two commodities, namely energy and raw materials, may pose a threat to the country's inflation next year," Planning Director of the National Development Planning Board (Bappenas) Bambang Prijambodo said.

He said that inflationary pressures would begin to be felt in January 2010 and by June the year-on-year inflation rates would likely be recorded at 5 to 5.6 percent. For the energy sector, pressures would come from non-subsidized fuel oils.

Improvement in the global economy will generate demand for oil, particularly oil from the Asian region such as China and India.

"If the economic performance in the United States and Europe remains stable, Asia -China, India in particular- will have a better economic performance and this would trigger an increase in demand for oil," he said.

He said that India and China were able to reach an economic growth of 7.9 percent and 8.9 percent, respectively, even though this year's economic meltdown hit the world. Thus, the two countries would be more expansive if in 2010 the world economy is improving.

"Under these circumstances, various quarters have predicted that world crude prices would range US$70 - US$80 per barrel," Bambang said.

The second threat to the inflation next year is the increase in demand for raw materials for industrial production. Demand for raw materials for production will increase. "The price of metal for example has already started to increase," he said.

The price increases on the global market will raise the inflation rate at home, especially because of raw material imports for industrial production.

The five percent inflation rate in 2010 is higher than the three percent predicted this year.

Bank Indonesia believes that the inflation rate will be below three percent this year despite year-end pressures, the bank's deputy governor, Budi Rochadi, said.

"Indeed there are pressures ahead of the long year-end holidays but I believe it will be below three percent," he said. Budi Rochadi even predicted total inflation in 2009 would be around 2.8 percent.

A similar statement was also made by Finance Minister Sri Mulyani that this year's inflation rate may turn out to be below three percent because the monetary stability in 2009 was "all good."
"From the stability point of view what has happened in 2009: inflation, interest rate and rupiah exchange rate were all good. In 2009 the inflation rate will possibly reach below three percent with the rupiah exchange rate appreciating to the best level in the world," she said.

She said in 2009 the inflation rate in Indonesia was quite good and low, so that in 2010 it was expected to remain low despite increasing inflationary pressures.

She said it was expected the inflation rate in 2010 would reach five percent, plus or minus one percent.

In the meantime, Coordinating Minister for the Economy Hatta Radjasa shared the view saying this year's inflation rate was expected to reach three percent. "Inflation rate is expected to be three percent or lower," he said on the same occasion.

The head of the Central Bureau of Statistics (BPS), Rusman Heriawan predicted this year's inflation rate would be around three percent, because December's inflation rate was not yet normal while commodity prices were also still low, he said.

The January-November annual inflation rate of 2.45 percent in the entire year of 2009 is predicted to be around three percent or a bit lower or higher.

Inflation pressure in December is expected to come from the price of rice due to year-end seasonal factors. The transportation sector is also expected to rise, he said.

Rusman Heriawan said the price of chili which had earlier triggered an inflation, was predicted to drop sharply this month.
"So based on the past two weeks of observation I think the inflation rate could be far below one percent because the price of some commodities such as red chili has dropped very sharply while the price of rice increased a little bit," he said.

However, the BPS chief has yet to take transportation fares into account, which is rising ahead of Christmas holiday.

The year-on-year inflation rate this year could be a little below three percent, or slightly above three percent," Rusman Heriawan said.

In November, 2009, the Central Bureau of Statistics announced the inflation rate in the January-November 2009 period had reached 2.45 percent, or 2.41 percent year on year basis.

With the central bank's target set at 2.8 percent it means the inflation rate in December must be around 0.35 percent.

According to acting governor of the central bank, Darmin Nasution, the low inflation rate in 2009 was the result of economic slowdown due to global economic crisis.

"This year the inflation rate will be below four percent. There is no normal pattern because the economy is slowing down," he said.

Darmin said that under the normal pattern, the inflation rate in Indonesia should reach five to six percent in view of the global crisis.