Consumer Price Index of Indonesia: Prabowo’s Electricity Discounts Caused Big Deflation in January
Indonesia began 2025 with a month of steep deflation. In January 2025, the headline deflation rate of Indonesia hit 0.76 percent month-on-month (m/m). It is a monthly decline we have not seen since the 1997-1998 Asian Financial Crisis.
As a consequence, the year-on-year (y/y) headline inflation rate of Indonesia fell to 0.76 percent. In fact when looking at the latest data released by the Statistical Agency of Indonesia (Badan Pusat Statistik, or BPS) we were actually a bit confused because the monthly deflation rate (-0.76 percent) and annual inflation rate (+0.76 percent) look almost similar. However, that is just an unfortunate coincidence.
An annual inflation rate of 0.76 percent (y/y) is quite extraordinary for Indonesia as we have to go back to early 2000 to find a lower annual inflation rate for Indonesia.
However, there is certainly no reason for alarm as weak annual inflation (including January 2025 deflation) did not mean that purchasing power in Indonesia crashed. On the contrary, when we look at the BPS data then there might actually be some room for a small, yet temporary, rebound in the strength of Indonesia’s purchasing power. For that, we need to take a look at what exactly caused deflation in January.
As usual, the food, drinks and tobacco expenditure group caused biggest inflationary pressures in Indonesia. In fact, in January 2025, this group showed heavier inflation than normal at 1.94 percent (m/m). This was the consequence of the festive season that still made its presence felt in early January 2025 (specifically the country’s New Year celebrations and holiday).
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