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<DIV>Oil prices stoke Indonesian inflation<BR>2005 Nov 03<BR>Feedback Andrew
Burrell | Jakarta<BR><BR><A
href="">http://afr.com/premium/articles/2005/11/02/1130823270889.html</A>
<BR><BR>Indonesia's economy is suffering worse than expected fallout from
high<BR>global oil prices, with inflation surging to a six-year high of
almost<BR>18 per cent and the central bank forced to raise interest rates for
the<BR>fifth time in two months.<BR><BR>Analysts said yesterday the latest
negative developments confirm that<BR>Indonesia would have great difficulty in
reaching its economic growth<BR>forecast of 6 per cent in 2005.<BR><BR>The
string of bad news in recent months is likely to place added<BR>pressure on
President Susilo Bambang Yudhoyono to sack some of his<BR>economic ministers in
a cabinet reshuffle expected as early as next<BR>week.<BR><BR>Indonesia's
consumer price index rose 17.89 per cent in October compared<BR>with the
previous year, which was well above market forecasts of 13.6<BR>per cent and the
biggest rise since June 1999.<BR><BR>Bank Indonesia responded late on Tuesday by
raising its benchmark<BR>short-term interest rate by 1.25percentage points to
12.25 per cent -<BR>its most aggressive tightening since the Asian financial
crisis.<BR><BR>The spike in inflation was caused largely by the government's
move last<BR>month to slash costly fuel subsidies and raise prices by an average
126<BR>per cent in a bid to ease fiscal pressures and appease
financial<BR>markets.<BR><BR>Analysts say rising interest rates and high
inflation will reduce<BR>household consumption and consumer bank lending,
leading to a slowdown<BR>in investment and overall economic
growth.<BR><BR>Domestic and foreign investment has been growing strongly in
2005,<BR>reflecting generally positive sentiment towards the economy and
the<BR>pro-business reforms of Mr Yudhoyono's government.<BR><BR>Standard
Chartered economist Fauzi Ichsan said the fiscal benefits of<BR>cutting fuel
subsidies might end up being outweighed by higher interest<BR>rates and rising
levels of unemployment and poverty. He said he would<BR>revise down his GDP
growth forecast of 5.5 per cent for 2005.<BR><BR>But Aburizal Bakrie, the chief
economics minister, said the surge in<BR>inflation was a "one-off" and would not
damage the economy in the longer<BR>term. He said inflation would fall
dramatically in November and<BR>December.<BR><BR>A spokesman for Mr Yudhoyono
said the President, who has come under<BR>heavy domestic criticism for his
decision to raise fuel prices so<BR>aggressively, was shocked at news of the
spike in inflation.<BR><BR>Mr Yudhoyono is under pressure to make changes to his
cabinet after<BR>several months of bad economic news. <A
href="mailto:jgoldie@snowy.net.au"></A></DIV></BODY></HTML>