Indonesia sees first deflation reading in more than two decades

Indonesia's consumer price index fell for the first time in more than two decades in February, official data showed on Monday, after the government gave a substantial discount on electricity bills to support economic growth.

The consumer price index fell 0.09% year-on-year last month, the first annual measure of deflation since March 2000, and well below market expectations for 0.60% inflation.

It was the second month in a row the annual CPI rate has come in below the central bank's inflation target range of 1.5% to 3.5%. January's inflation rate was 0.76%.


Among the top contributors to the annual deflation were utilities, due to a 50% discount on electricity tariffs for some customers in January-February.

Lower prices of some food products such as rice, tomatoes and red chillies also contributed, as food production in the last two months recovered from the impact of a drought last year.

"This (deflation) was not due to weaker purchasing power, but because of the discounted electricity tariffs," Statistics Indonesia chief Amalia Adininggar Widyasanti said in a press conference.

The core inflation rate, which strips out government-controlled prices and volatile food prices, picked up slightly to an annual 2.48%, compared to 2.42% expected by analysts and a rate of 2.36% in January.

The CPI is expected to rise again starting March as the discounted electricity tariffs end, but will remain low with new government policies to give discounts for air fares and toll roads during the Ramadan holiday, Bank Danamon economist Hosianna Situmorang said.

With that stimulus, she expected GDP to grow at 5.1% to 5.2% this year, in line with the government's target of 5.2%. Last year, the economy grew 5.03%.

With inflation low, Bank Indonesia may have an opportunity to further reduce rates, but global market volatility may be the bigger consideration for the central bank.