Indonesia managed to maintain its inflation rate within the central bank's target range of 1.5% to 3.5% in February 2024, despite a notable increase in volatile food prices, latest figures from the Indonesian Central Statistics Agency (BPS) showed.  

On Friday, March 1, 2024, BPS reported a significant 8.47% year-on-year rise in food prices as the country prepares for the Ramadan season, marking the highest spike since September 2022. The surge, primarily driven by escalating costs of staples such as rice, red chilies, eggs, poultry, and cooking oil, has yet to push inflation beyond Bank Indonesia’s (BI) acceptable threshold. 

M. Habibullah, a senior official at BPS, highlighted rice, chicken, chili, and sugar as major contributors to the uptick, as per Reuters. The national rice price index indicates a 19.28% annual increase in rice retail prices in February, reaching a record high due to anticipated production declines. With an expected 17.52% drop in rice output during the January-April 2024 harvest, concerns over food security and inflation have intensified. 

Nevertheless, February's inflation rate accelerated modestly to 2.75% from 2.57% in January, staying within BI's targeted range. Core inflation, excluding government-controlled and volatile food prices, held steady at 1.68% in February, slightly below market expectations. 

Amid these developments, BI Governor Perry Warjiyo has signaled a potential for interest rate cuts in the latter half of 2024, contingent on inflation trends and currency stability. The central bank has successfully kept inflation within its targeted band since mid-2023, following a cumulative 250 basis point rate hike from August 2022 to October 2023. 

Economists, such as Maybank Indonesia's Myrdal Gunarto, acknowledge the inflation uptick but note it remains within BI's tolerance, suggesting a steady interest rate policy until global risks, particularly inflationary pressures, subside. 

"Inflation is picking up, but is still within BI's target range," said Mr. Gunarto, as quoted by Reuters. "BI will maintain interest rates until there is easing global risk, especially to inflation." 

BI anticipates a temporary spike in food prices due to seasonal factors, aiming to keep volatile food inflation around 5%. 

Bank Danamon economist Irman Faiz predicts that seasonal trends, especially during Ramadan and the Idul Fitri holidays, will drive food prices higher, potentially peaking in March or April. Faiz forecasts headline inflation to approach 3% year-on-year in the coming months.  

“Anticipating a surge in food prices, we foresee headline inflation nearing 3 percent y-o-y in the next two months,” he said, as quoted by The Jakarta Post.