Indonesia inflation eases on lower fuel prices

Indonesia’s inflation rate slowed in January, official data showed Monday, after the cost of fuel in Southeast Asia's biggest economy fell on the back of lower oil prices.

Inflation rose 6.96 percent year-on-year, slowing from an 8.36 percent rise in December, according to data from the national statistics agency.

The rate had accelerated in recent months after the new government reduced huge subsidies on petrol and diesel, pushing up the cost of transportation and delivering goods.

But after the price of oil fell dramatically, the government decided to scrap the subsidy regime for petrol entirely, and put a fixed subsidy on diesel.

Due to lower global oil prices – the oil market has lost more than half its value since June last year – letting fuel float with the market actually reduced costs, which has fed through to lower inflation, analysts said.

Lower fuel prices have led to a reduction in the cost of land and air transport, and food, according to the statistics agency.

From a month earlier, the price of goods and services fell by 0.24 percent, the agency said.

Interest rates are at 7.75 percent but economists played down the possibility that the central bank would move quickly to make a cut, given they are still battling a large current account deficit and a weakening rupiah.

Gundy Cahyadi, an economist with Singapore's DBS Bank, said that "it remains to be seen if the central bank wants to move at this juncture".

In more good news, the trade balance swung to a $186.8 million surplus in December from a $425.5 million deficit the previous month due to higher exports, according to official data.