Bank Indonesia: Low & Stable Inflation Positive for the Economy
Bank Indonesia is content seeing Indonesia's inflation pace at a rather mild rate of 0.22 percent month-on-month (m/m) in July 2017. Dody Budi Waluyo, Executive Director of Economic and Monetary Policy at the central bank, said low and stable inflation is a positive asset for the economy as it supports the rupiah exchange rate as well as the investment climate and safeguards people's purchasing power.
Based on data from Indonesia's Statistics Agency (BPS), released earlier this week, Indonesian inflation eased to 3.88 percent year-on-year (y/y) in July 2017, from 4.37 percent in the preceding month. Going forward, Bank Indonesia sees controlled inflation and is therefore convinced that the central bank's full-year 2017 inflation target (3-5 percent) will be achieved.
Bank Indonesia said the 0.22 percent monthly inflation pace in July was lower than the average inflation rate after the week-long Idul Fitri holiday (the festivities that mark the end of the fasting month) in the last three years of 0.28 percent (m/m).
By component, low inflation in July was primarily the cause of easing administered and volatile food prices. Inflation of administered prices was recorded at a low pace of 0.07 percent (m/m), decreasing from a pace of 2.10 percent (m/m) in the preceding month when the government implemented another round of electricity tariff adjustments for customers of non-subsidized 900 VA.
Meanwhile, intercity transportation and train fares deflated after the Idul Fitri celebrations, a period when millions of people travel back to their places of origin. Airfare remained to contribute to inflation in line with the continued school holiday. Annually, inflation of administered prices reaches 9.27 percent (y/y).
Inflation of volatile food products was recorded at 0.17 percent (m/m) in July 2017, decreasing from a pace of 0.65 percent (m/m) in the preceding month. This decline is in line with the average in the period after Idul Fitri over the last three years, namely 0.16 percent (m/m). Garlic, chicken meat, rice, and red chili are commodities that saw easing prices. Meanwhile, prices of chicken egg, tomato, and onions increased. On an annual basis, inflation of volatile food was recorded at 1.13 percent (y/y).
Inflation in Indonesia:
| Month | M/M Growth 2013 |
M/M Growth 2014 |
M/M Growth 2015 |
M/M Growth 2016 |
M/M Growth 2017 |
| January | 1.03% | 1.07% | -0.24% | 0.51% | 0.97% |
| February | 0.75% | 0.26% | -0.36% | -0.09% | 0.23% |
| March | 0.63% | 0.08% | 0.17% | 0.19% | -0.02% |
| April | -0.10% | -0.02% | 0.36% | -0.45% | 0.09% |
| May | -0.03% | 0.16% | 0.50% | 0.24% | 0.39% |
| June | 1.03% | 0.43% | 0.54% | 0.66% | 0.69% |
| July | 3.29% | 0.93% | 0.93% | 0.69% | 0.22% |
| August | 1.12% | 0.47% | 0.39% | -0.02% | |
| September | -0.35% | 0.27% | -0.05% | 0.22% | |
| October | 0.09% | 0.47% | -0.08% | 0.14% | |
| November | 0.12% | 1.50% | 0.21% | 0.47% | |
| December | 0.55% | 2.46% | 0.96% | 0.42% | |
| Total | 8.38% | 8.36% | 3.35% | 3.02% | 2.60% |
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
| Inflation (annual % change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 | 8.4 | 3.4 | 3.0 |
| BI Target (annual % change) |
5.0 | 4.5 | 5.0 | 5.0 | 4.5 | 4.5 | 4.5 | 4.0 | 4.0 |
Source: Bank Indonesia