In January the rate of inflation accelerated to the fastest pace in 21 months, with consumer prices rising by 7% year on year, according to BPS. A 16.2% year-on-year rise in food prices was the main contributor to the inflationary pressures. On a month-on-month basis, the rate of inflation stood at 0.9%, with food prices contributing 0.6 percentage points to the overall increase in prices. According to the Ministry of Trade, in January the price of rice rose by 3.4% year on year, and the cost of red chillies was up by 20.7%. Inflationary pressures are likely to gather pace in the coming months, particularly after the planned restriction of sales of subsidised fuel to private cars in Jakarta from April 1st. However, the main rice harvest, which takes place in February-March, should help to damp down food prices.

Despite the acceleration in headline inflation, core inflation, which excludes volatile food and fuel prices, slowed slightly in January, to 4.2% year on year, down from 4.3% in December. Core inflation is a key measure tracked by BI when making decisions on interest rates. The central bank had previously indicated that it would raise interest rates only if core inflation approached 5%, maintaining that rises in consumer prices had been caused by temporary factors influencing non-core goods and services.

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