Rising inflation this month due to increased spending during the month of Ramadan is to be expected and will not launch the rate higher than the year's estimate, the central bank says.
Bank Indonesia (BI) deputy governor Hartadi A. Sarwono said Wednesday that BI had worked in factors including Ramadan and Idul Fitri in its calculation of its 2008 inflation estimate of between 11.5 and 12.5 percent.
"We hope (inflation) can be within that range. We have included Idul Fitri in our calculations," Hartadi said.
He said increasing prices during the fasting month were due to a surge in demand.
During the month, spending usually increases as people buy more food and drink and spend on celebrations for Idul Fitri, which marks the end of Ramadan.
In the January-August period, inflation reached 9.4 percent, according to the Central Statistics Agency (BPS). Year-on-year inflation in August stood at 11.85 percent, slightly down from 11.9 percent in July.
Consumer prices rose 0.51 percent in August from July, the lowest rate this year, and well below the 1.37 percent rise in July from June.
However, analysts said inflation will likely rebound this month.
Recapital Securities analyst Poltak Hotradero and Bank BNI economist Ryan Kiryanto said businesses "tend to take advantage of strong spending ahead of the Idul Fitri holiday".
Acting Coordinating Minister for the Economy Sri Mulyani Indrawati said the government expected the inflation of food prices during this year's Ramadan to be lower than in last year's period, which began mid-September.
In August, rises in food prices contributed 50 percent to on-month inflation.
Trade Minister Mari Elka Pangestu said the government would stockpile staple foods, including rice, cooking oil, sugar and flour, to prevent food prices from increasing more than 10 percent this month.
Hartadi said September's inflation rate would depend on the distribution and stock of staple foods.
"If both can be assured, inflation will not be higher than expected," he said.
If inflation soars this month, the BI will likely raise its interest rate in October to cushion the rate.
Analysts have estimated the central bank's rate will reach 9.5 percent by the end of the year.
The government raised its rate, which now stands at 9 percent, by 25 basis points in five consecutive months starting May. BI's board of governors will meet Thursday to decide whether to raise the rate again.
