IMF Sounds the Alarm on Inflation

IMF Sounds the Alarm on Inflation

Accelerating rises in Asian consumer prices, especially the soaring costs of energy and food, may require central banks to raise interest rates further to limit the risk of overheating in their economies, the International Monetary Fund warned on Tuesday.

Inflows of capital to the region are helping to drive prices even higher, the IMF’s managing director, Dominique Strauss-Kahn, said in Singapore, warning that this could lead to social upheavals.

“In Asia, recent rate actions were the right decision — though more may be needed,” he said.

Policy makers in some countries may consider the short-term use of capital controls to aid financial stability, Strauss-Kahn said.

“In some cases, going back to capital controls may be of temporary use. But they should not be a substitute for necessary macroeconomic and macro-prudential policies,” he said.

Indonesia saw annual inflation hit a 21-month high of 7.02 percent in January, topping both market forecasts and missing the central bank’s end-2011 target range of 4 percent to 6 percent by a mile.

Core inflation slowed, however, sliding from 4.26 percent in December to 4.18 percent in January.

Indonesia’s central bank has been the only one in the region not to have adjusted its benchmark interest rate, which has stayed at 6.5 percent since August 2009 as Bank Indonesia has been trying both to avoid another wave of “hot money” capital flows and to support economic growth, expected this year to reach 6.4 percent.

It has said it will not raise interest rates unless core inflation, which excludes volatile items such as food and energy prices, approaches 5 percent.

But that is now beginning to be undermined by the rising cost of food, raw materials and supply shocks caused by erratic weather. The Central Statistics Agency (BPS) said rising food prices were the biggest drivers of inflationary pressure, with rice and chili peppers the primary culprits.

Inflation acceleration is also taking place in South Korea, with consumer-price gains breaching the central bank’s 4 percent ceiling in January, and to a lesser extent in Thailand. Elsewhere in Asia, India is seeing its manufacturing keep expanding while input prices are rising in China, separate reports showed on Tuesday.

Accelerating consumer-price gains prompted South Korea, Thailand and India to increase rates last month. China’s central bank has raised its benchmark interest rate twice since October and pushed banks’ reserve requirements to the highest in more than two decades to drain away cash that could stoke inflation.

The IMF last month raised its forecast for global economic growth this year, predicting an expansion of 4.4 percent. While a faster-than-expected second half of 2010 helped put the world on a stronger foothold this year, the IMF warned that risks to its predictions remain “elevated.”

“Looking more closely, we see a worrying development: the pre-crisis pattern of global imbalances is re-emerging,” Strauss-Kahn said on Tuesday.

Oil traded near the highest in more than two years in New York and Brent crude topped $100 a barrel after a seventh day of unrest in Egypt raised concern supplies may be disrupted.

State oil and gas company Pertamina on Tuesday increased the price of its unsubsidized fuel from Rp 7,850 per liter to Rp 8,050 (87 cents to 89 cents), raising worries that higher world oil prices may further push fuel prices up. Pertamina adjusts the price of its unsubsidized Pertamax fuel twice a month.

Tulus Abadi, managing director of the Indonesian Consumer Protection Foundation (YLKI), said the price of Pertamax rising by 2.5 percent was not as worrying as the government’s plan to ban private cars from using subsidized Premium fuel, starting in April for Jakarta and the rest of the country later in the year. That could push drivers’ fuel bills up nearly 100 percent as they would have to buy the almost twice as costly Pertamax.

“It will be so much better if the government increases the price of Premium, as banning people from using subsidized fuel would have a domino effect and would be more dangerous [for inflation],” he said.

With additional reporting by Elisabeth Oktofani

Resigned to Their Fate: Jakartans Plan for Higher Costs

Resigned to Their Fate: Jakartans Plan for Higher Costs

Anita Rachman & Elisabeth Oktofani

Jakarta. Jakartans’ reactions to news of the impending restrictions on subsidized fuel ranged from anger over the price hikes to indifference, with nobody interviewed showing enthusiasm for the new rule.

“It is unfair that the government will limit the usage of subsidized fuel,” said Rina, a private sector employee.

“The rule should be aimed only at people who drive fancy cars. How many fancy cars are there in this town? They are the ones who should actually pay more, since they have more money to buy fuel.”

Jodi Pamungkas, who works at a private company, said he would need to rearrange his monthly expenses if the government went ahead and restricted the use of subsidized fuel.

“I would have to recalculate my monthly expenses, especially for transportation, as I pay for it all myself,” he said. “The government has to think about who this new rule is affecting. Not everybody who drives a car has a lot of money.”

Reza Irawan, who works at a private bank in Jakarta, said he had no problem with the price increase since his company usually paid for his gasoline.

“So far, my company has not warned us about any rule changes due to increased fuel prices. As far as I know, they will keep paying for my transportation. So I don’t think I have any problems,” he said.

Rudi, an employee at a private company in Central Jakarta, shared similar sentiments.

“I drive a car made in 2008. But my company pays for my transportation, so I do not think that I will have a problem with the new rule,” he said. “However, for my personal travel, I will have to get smarter about spending money on fuel.”

Charles Banua, who drives a 1998 Toyota van, was resigned to his fate. “My van is already a gas guzzler and if I have to pay more to use it, I may just sell it and get myself a motorcycle,” the insurance salesman said.

M. Romahurmuziy, a United Development Party (PPP) lawmaker, said the decision to apply the new rule on subsidized fuel for all private cars, regardless of model year, would “disrupt economic justice.”

He said many cars on the road were made before 1990 and were only worth as much as a new motorcycle.

“A combination of the production year and [engine] size should have been taken into account,” he said, adding that cars built after 2005, as well as those built before but with large engines, should not be eligible for the cheaper gas.

The lawmaker also said taxis should not be eligible since “the people who use them are from the upper middle class.”

Romahurmiziy also warned the government to make sure that enough fuel was available throughout the areas surrounding Greater Jakarta, since residents living on the outskirts of the city would most certainly go to neighboring areas to buy cheaper gasoline. 

Rina: ‘It is unfair! The rule should address those who drive fancy cars. How many fancy cars are there in this town?'

Rudi: ‘My company pays for my transportation, so I do not think that I will have a problem with the new rule.’

Jakarta's Migrant Workers Sweat to Make Rupiah Stretch

Jakarta's Migrant Workers Sweat to Make Rupiah Stretch

Jakarta. Among the millions of who flock to Jakarta in search of jobs each year, many will tell you they can subsist on minimum wage, but it’s unlikely to be any fun.

People living on slightly above or below the monthly minimum wage — to be raised to Rp 1.29 million ($143) in 2011 — have their work cut out for them.

For photographer Sugiharto, making ends meet on just Rp 1.4 million a month is a challenge.

The 35-year-old father of two, married to a public school teacher in Bekasi, said he had been trying to use his networking skills to land photography jobs, selling personalized services for customers and corporations.

Though his wife earns Rp 800,000 a month, Sugiharto says their combined income is barely sufficient.

“It’s never enough if you live in Jakarta,” he said. “We have a list of bills to pay which we struggle to meet.”

Sugiharto says his firstborn’s monthly school fees are Rp 160,000, the family’s electricity bill runs up to Rp 250,000, and around Rp 600,000 goes toward transportation. “So if I don’t look for extra income, how can I support my family properly?”

Budi Hartono, 26, who works for a cleaning service, says he continually racks up debts just to be able to support his family.

“I trust my wife to manage my monthly salary. It’s not much, just Rp 980,000. Even though we have no children, my monthly salary isn’t enough,” he said, adding his debts made him uneasy. “Early in the month, I always try to pay off my debts slowly. Only then can I think of buying luxuries like chicken, meat or fish. And all of that is just [for] the first week of the month.”

Tutut, 23, who works at a juice counter at the Plaza Semanggi mall, says she earns Rp 1.05 million a month, with half of it going to her parents and the remainder spent on commutes.

She says she looks forward to Idul Fitri, when she gets her bonus and can buy new clothes.

“It’s nothing fancy, but it’s the only time I can finally treat myself to something special,” Tutut said. “I can’t really do much with my salary as it is.

“It might not be fun to live on a small salary, but I’m so grateful to have a job and help my family,” she added.

“I just hope that when my salary increases, the living costs don’t increase as well, so I can manage my life better.”