Indonesia's Inflation Accelerates to 22-Month High

By Naila Firdausi and Arijit Ghosh

Aug. 1 (Bloomberg) -- Indonesia's inflation accelerated more than estimated to a 22-month high in July, stoking speculation the central bank will increase interest rates.

Consumer prices jumped 11.9 percent from a year earlier, after rising 11.03 percent in the previous month, the Central Statistics Bureau said in Jakarta today. Economists were expecting an 11.15 percent gain. The agency switched to using 2007 as the base year for its calculations in June.

Stocks plunged 2.3 percent on concern accelerating inflation will prompt the central bank to increase its policy rate faster, a move than may slow earnings growth. Governor Boediono, who today said he would use ``all instruments'' to tame prices, may raise Bank Indonesia's benchmark rate next week for a fourth straight month.

The central bank's ``policy response of limited interest- rate hikes, coupled with efforts to smooth out exchange rate volatility, appears to be on the right track,'' said Helmi Arman, an economist with PT Bank Danamon Indonesia in Jakarta. Bank Indonesia may raise its policy rate to 9.5 percent by year-end, he said.

Indonesia's state oil company PT Pertamina raised the price of liquefied petroleum gas sold in 12-kilogram (26-pound) cylinders to households by 24 percent on July 1, the first increase since December 2004. That prompted the central bank to dump its forecast of slowing price gains last month.

Consumer prices rose 1.37 percent in July from a month earlier, according to today's report.

``We will use all instruments to fight inflation, including the policy rate, open-market operations and if necessary the reserve requirement for commercial banks,'' Bank Indonesia Governor Boediono said today before the statistics agency released the data. The central bank forecasts inflation at between 6.5 percent and 7.5 percent next year, he said.

The agency said exports in June rose 35 percent to $12.9 billion, while imports outside trade zones was at $9.83 billion.

To contact the reporters on this story: Naila Firdausi in Jakarta at nfirdausi@bloomberg.net; Arijit Ghosh in Jakarta at aghosh@bloomberg.net