Consumer Price Index of Indonesia: Inflation Accelerates Rapidly after Subsidized Fuel Price Hike

Headline inflation soared 1.17 percent (m/m) in September 2022 fueled by growing transportation costs. As a consequence, year-on-year (y/y) headline inflation grew to 5.95 percent (y/y), which is the highest level of Indonesian inflation since October 2015 (when inflation was recovering from an earlier subsidized fuel price hike).

And so, the chart below shows a steep upward line at the right end. Moreover, we expect the continuation of inflationary pressures in the next two months (October and November 2022) as September 2022 only involved the first round effect. In fact, Margo Yuwono, Head of Statistics Indonesia, warned that a number of regions are yet to increase transportation fares, implying that the first round effect is not even fully over yet.

Typically, after the first round effect has waned, we see the kicking in of the second-round effect when companies or entrepreneurs (that initially refrained from raising prices) make the decision to pass on higher costs to customers. Therefore, we expect some significant inflationary pressures in the remainder of the year. And while the impact of the fuel price hike should have waned by December 2022, the Christmas and New Year celebrations always bring some new price pressures as consumption tends to peak in this period.

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This is part of the introduction. The full text is available in our September 2022 report (an electronic report; PDF in English). This report can be ordered by sending an email to info@indonesia-investments.com or a message to +62.882.9875.1125 (including WhatsApp).

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