Indonesia's Inflation Rate Expected to Rise in 2017
Most analysts and government officials see Indonesian inflation accelerating this year after a mild 2016 in which Indonesia's consumer price index rose by 3.02 percent year-on-year (y/y) only. Indonesian Chief Economics Minister Darmin Nasution said low inflation in 2016 was primarily caused by low administered price growth (in a couple of months administered prices in fact fell last year) as well as controlled food prices. He added, however, that food prices have been rather volatile and are expected to remain volatile in 2017.
Minister Nasution expects higher inflation in 2017 due to the combination of volatile food prices and higher administered prices (set by the central government). Administered prices primarily cover electricity and fuel. However, the government will most likely not allocate more funds to energy subsidies (because this would go against the ambitions of President Joko Widodo who seeks more funds for infrastructure development) and therefore the government should primarily focus on the safeguarding of stable food prices in order to play its part in terms of inflation control.
The central government in fact plans to cut electricity subsidies, while fuel prices may also be set higher soon considering global oil prices have continued their (gradual) upward trend. Therefore, Indonesia's inflation rate is likely to rise by around 4 percent (y/y) in 2017, right in the middle of Bank Indonesia's 3 - 5 percent (y/y) target.
Indonesia's state utility firm Perusahaan Listrik Negara (PLN) will gradually raise the electricity price for 900 VA households in the first five months of 2017. This will affect about 23 million households and surely brings some inflationary pressures.
Food inflation in Indonesia was actually unconventionally low in 2016 due to the central government's price stabilization and "sea toll" program. This program may have reduced various commodity prices in the eastern region of Indonesia by (up to) 3.49 percent. The government also allowed beef imports and put ceiling prices for chicken meat. Combined, the government did a great job to safeguard stable food prices in 2016.
Eric Sugandi, Head Economist at SKHA Consulting, sees Indonesia's inflation rate accelerating slightly to 3.5 percent (y/y) in 2017, while Winang Budoyo, Head Economist at Bank Tabungan Negara, adds that higher oil prices and rising uncertainty about Donald Trump's political and economic policies as well as the impact of Brexit will cause a stronger US dollar and therefore he puts his inflation target for Indonesia in 2017 at 4.0 percent (y/y).
Inflation in Indonesia:
| Month | Monthly Growth 2013 |
Monthly Growth 2014 |
Monthly Growth 2015 |
Monthly Growth 2016 |
| January | 1.03% | 1.07% | -0.24% | 0.51% |
| February | 0.75% | 0.26% | -0.36% | -0.09% |
| March | 0.63% | 0.08% | 0.17% | 0.19% |
| April | -0.10% | -0.02% | 0.36% | -0.45% |
| May | -0.03% | 0.16% | 0.50% | 0.24% |
| June | 1.03% | 0.43% | 0.54% | 0.66% |
| July | 3.29% | 0.93% | 0.93% | 0.69% |
| 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% |
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
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