Indonesia's inflation held at a 16- month high last month amid rising food and energy prices, reducing the room for the central bank to cut interest rates to spur economic growth.
Consumer prices increased 7.4 percent from a year earlier, the Central Statistics Bureau said in Jakarta yesterday. That matched January's gain and the median forecast of economists surveyed by Bloomberg News.
Rising prices of meat, soybeans, energy and clothing may prevent Bank Indonesia, which has reduced borrowing costs by 4.75 percentage points since May 2006, from further cutting its rate. The IMF expects growth in Southeast Asia's largest economy to slow to 6.1 percent this year from 6.3 percent last year.
"In the coming months the inflation rate will likely increase," said Winang Budoyo, an economist at PT Bank Lippo in Jakarta. "Bank Indonesia will want to wait till they see inflation has stabilized before they cut rates further."
Budoyo expects the central bank to reduce its benchmark interest rate in November or December. Bank Indonesia next meets on Thursday to decide on monetary policy.
Indonesia, the world's biggest producer of palm oil, last month said it plans to increase the tax on crude palm oil exports to as much as 25 percent to boost domestic supplies and curb inflation if global prices of the commodity keep increasing.
Palm oil futures in Malaysia, the global benchmark, gained 8.3 percent last week to close above 4,000 ringgit (US$1,254) a tonne for the first time.
Indonesia's wheat flour prices may rise by more than 10 percent in the second quarter to help cover costs that have soared because of higher grain prices, said Ratna Sari Loppies, executive director of the country's wheat-milling association. Indonesia consumed about 3.6 million tonnes of wheat flour last year, she said.
Inflation slowed to 0.65 percent last month from a month ago. Core inflation, that excludes prices of food, accelerated to 7.3 percent from 7.1 percent.
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