NEXT YEAR LIKELY TO SEE HIGH INFLATION

By Andi Abdussalam

Jakarta, Dec 18(ANTARA) - Economic observers have predicted that inflation in 2011 could reach up to 6-7 percent, which is far higher than  the government's and Bank Indonesia (BI/the central bank)'s previous assumptions at 5.3 percent.          They based their predictions on various possibilities, including policies the government is likely to introduce in 2011 such as sn increases in fuel oil prices, the basic power rate  and the threat of global crisis.          "The economic growth target of 6.4 percent is likely to be achieved but we are not  sure about the inflation target. In  a pessimistic scenario . inflation in 2011 could reach 7 percent," A. Prasetyantoko, economic analyst of  Atmajaya Catholic University, told a seminar on monetary policy on Thursday.          Prasetyantoko said inflation could be estimated at seven percent if the world oil price did not increase.  "The story will be different if the world crude rises to US$100 per barrel," he said.          He said that the seven percent inflation estimate had not yet included consideration of possible increase in world crude price from US$80 per barrel.          A moderate estimate was made by economic observer A Tony Prasetiantono who put the figure for 2011 inflation at 6 percent. "I predict the inflation rate next year at about six percent,"  Tony Prasetiantono told a seminar on Indonesia's economic outlook 2011.          He said that Indonesia at present was still facing three big problems, namely currency wars, global financial crisis and bad infrastructure conditions.          Tony, who is head of the Economic and Public Police Study Center of the University of Gadjah Mada, said that an increase in electricity tariff rate and fuel oils as well as global crisis would have impact on Indonesia's economy and boost inflation.          However, the inflation in that rate is still classified as reasonable and would not badly disrupt the country's economy. This is because the rupiah exchange rate is inclined to be stable.          Although it will be facing internal and external constraints in 2011, Indonesia will still likely be strong to face it as it still has stable and strong domestic currency exchange value.          "I predict that the rupiah exchange rate against the US currency in 2011 would be at a range between 9.000 and 9.200 rupiah per dollar. Economic growth and inflation rates will respectively at 6.3 percent and 6 percent respectively," he said.           Yet, according to Prasetyantoko, inflation can even exceed 7 percent. He said inflation would pose a challenge for the management of Indonesian economy in 2011.          The government's plan to limit subsidized fuel oil consumption in March 2011 will drive up fuel oil prices. In addition, increases in world crude prices and climate change issues are likely to generate inflation and food prices.          "This all will create inflationary pressures. If conditions worsen inflation can reach over 7 percent," Prasetiyantoko said.          He said that so far there were no indications whether global economic conditions would be improving or not.          "If economic conditions in Europe and the United States are improving there is the possibility of capital outflows from Indonesia that would influence inflation in the country," Prasetyantoko said.           Legislator Aziz Syamsuddin of the Golkar Party shared Prasetyantoko argument that limitation of fuel oil consumption will also trigger inflationary pressures and has a great impact on the economy because of the burden it will create for large segments of middle class society.           "The government should be really careful with its policy to scrap its fuel oil subsidy because it will affect the people's interest and has a direct impact on them,"  Aziz Syamsuddin, a member of the House  of Representatives said.           He said the plan to restrict the use of subsidized fuel would affect the prices of basic commodities.  These goods reach markets through a transportation process mainly involving vehicles running on fuel oil. If transport operators have to pay higher fuel prices, transportation costs will automatically rise and so will the commodities' prices.          "Means of transportation for commodity is usually privately owned, the segment that isn't included in the subsidized vehicle category," Syamsuddin.          He added an increase in transportation cost will automatically  create an extra financial burden for the people  as basic prices move up whereas their income remains stagnant. "Really difficult situations may emerge from this fact. So, the government needs to be very careful in this regard," he added.          In the meantime, BI also predicts that inflationary pressure in 2010 will continue to take place in 2011 but it will not exceed the 6 percent level.  "The inflationary pressure would continue in 2011 from the beginning of the year but it would not exceed 6.0 percent," BI Governor Darmin Nasution.          Nasution said that next year's inflation would not reach 6 percent as far as there was no extraordinary event that would trigger inflation. For this year, BI has since the beginning predicted that the inflation in 2010 would slightly above 6 percent.           This is because in July 2010 a number of cases had boosted the inflation such as the increase in the basic electricity tariff and bad weather that caused agricultural product to weaken.          However, Darmin refused to mention the exact level of the inflation rate in 2011. In BI's assumptions, inflation was set at 6.5 percent for 2010 and 5.3 percent for 2011.      (T.A014/A/HAJM/14:15/f001)