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11 April 2025 (closed)
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Consumer Price Index of Indonesia – The Return of Inflation in March 2025
As expected, Indonesian consumer prices rebounded in March 2025 after Southeast Asia’s largest economy had experienced two straight months of significant deflation in January and February 2025 (see table 1).
The latest data from the Statistical Agency of Indonesia (Badan Pusat Statistik, BPS), which were released later than usual due to a long national holiday (Idul Fitri), show that Indonesian inflation accelerated by 1.65 percent month-on-month (m/m) in the third month of the year (March 2025).
Also year-to-date, Indonesian inflation rebounded to 0.39 percent (in March 2025), from -1.24 percent (deflation) one month earlier.
Meanwhile, also on a year-on-year (y/y) basis, deflation turned into inflation. BPS data show that -0.09 percent (y/y) of deflation recorded in February 2025 managed to turn into 1.03 percent (y/y) of inflation in March 2025. Although this is, indeed, a return to normal, Indonesian headline inflation around the 1 percent (y/y) mark is a highly unusual matter (see Chart A) that we normally only see in times of crisis.
But, as should be widely known, Indonesia’s consumer price index is heavily feeling the impact of a 50 percent electricity rate discount incentive that applied in January and February 2025. Indonesia’s cabinet offered this incentive to protect consumers’ purchasing power following an increase in the country’s value-added tax (VAT) rate at the start of the year (a VAT rate hike that was scaled back enormously at the very last moment). The total budget allocated for this two-month electricity discount was set at IDR 12.1 trillion (approx. USD $755.2 million).
This electricity rate discount was offered by fully state-owned electricity company Perusahaan Listrik Negara (PLN) to customers with an electricity capacity of up to 2,200 VA, which represents around 97 percent of PLN’s customer base, hence has a big impact. It’s estimated that around 81.4 million households in Indonesia enjoyed this electricity discount in January and February 2025.
In fact, the impact of the electricity discount program is still being felt in March 2025 because the post-paid customers are still enjoying cheaper electricity in March 2025, implying we should still see this continuation of inflationary normalization in April 2025.
Because of the focus on the electricity discount program, one almost forgets that the March 2025 inflation data also absorbed the impact of the seasonal Ramadan month, which is the period when consumption typically rises strongly.
Table 2 shows the price changes per expenditure group. As noted above, the housing, electricity, water and household fuel expenditure group showed highest pressures (at +8.45 percent m/m) in March 2025 due to the end of the electricity rate discount program. This group is the biggest contributor to Indonesia’s March 2025 headline inflation.
What is also interesting is that the food, drinks & tobacco expenditure group showed marked inflationary pressures too (at 1.24 percent m/m) in March 2025. However, it feels like a somewhat modest price increase amid Ramadan celebrations. One year ago, in March 2024, this food, drinks and tobacco expenditure group showed 1.42 percent (m/m) of inflation. Although we have to be careful comparing March 2025 to March 2024 (because the Ramadan month moves forward due to the Islamic year being 10-11 days shorter), modestly growing food prices does fit the perception of softness in purchasing power: while most macroeconomic data show sound results (with the notable exception of car sales), there is ongoing concern over purchasing power as many business-owners in a variety of sectors complain about weak sales.
Moreover, when we watch Indonesian media coverage of traveling (mudik) in the context of the Idul Fitri holiday (at the start of April 2025), then all reports seem to point at a decline in traveling (compared to a year ago). Again, this is linked to weak purchasing power. And so, this could also explain why price pressures in this food, drinks and tobacco expenditure group are lower than expected.
In March 2025 food price inflation was especially driven by higher prices of onions, fresh fish, (green) bird’s eye chili, and chicken meat.
The clothing and footwear expenditure group also displayed bigger-than-usual price pressures (at +0.45 percent m/m), which is fully in line with increased demand for clothes and shoes amid the Ramadan period (and the approaching Idul Fitri period).
And, quite remarkable is the -0.08 percent (m/m) of deflation in the transportation expenditure group. After all, Idul Fitri started on 31 March 2025, which is when we typically see a sharp increase in demand for transportation. According to BPS data, deflation in this group was particularly caused by lower air transportation rates.
However, this is in line with the cabinet’s decision in the beginning of March 2025 to cut air travel ticket prices for domestic flights by 13-14 percent. Again, in an effort to support the people. This discount is available for flights in the period between 24 March 2025 and 7 April 2025, with the ticket purchase period between 1 March and 7 April 2025.
Lastly, and as usual in the recent past, the personal care & other services expenditure group showed significant price pressures at +0.95 percent (m/m). The main factor that has been causing price pressures in this category is gold jewelry (due to the high global gold price).
While headline inflation has been volatile due to government intervention in recent months, core inflation (which excludes volatile food prices and state-administered energy prices) has been rather stable, and at a comfortable level. In March 2025, the core inflation rate grew by 0.24 percent (m/m), which is almost unchanged from a pace of 0.25 percent (m/m) in February 2025.
Meanwhile, Indonesia’s annual core inflation climbed 2.48 percent (y/y) in March 2025, unchanged from the preceding month, giving the impression that purchasing power is doing fine as it suggests that Indonesian consumers have enough money to spend on products or services other than food and energy.
But it could, of course, be the case that the attractive discounts given by the cabinet in recent months (such as electricity and transportation, including lower fuel prices amid Idul Fitri) are allowing core inflation to stay at stable levels in recent months, thus sort of hiding weak purchasing power. If so, we will find it out in the next couple of months (because in case of a purchasing power issue, then the core inflation rate should ease in the months to come).
In conclusion, we can say that elevated inflation in March 2025 was expected due to the end of the electricity rate discount program, while demand in society also grew amid Ramadan celebrations and (approaching) Idul Fitri festivities.
In April 2025 we are bound to see ongoing elevated inflation as households that use post-paid electricity bills were still able to enjoy cheap electricity in March 2025, while Idul Fitri-related demand in society should really be felt in April 2025.
Still, we also noticed some softness in the inflation data. Partly, this can be attributed to government policy (such as deflation in the transportation expenditure category because the government offered discounts for air travel and fuel). However, food price inflation was not as strong as usual, which theoretically could also be caused by strong food supplies. But in combination with news coverage of subdued demand for transport in the context of Idul Fitri, it does leave room for (some) concern over purchasing power, even though the BPS data still don’t reflect real weakness.
For now, we keep our outlook for Indonesia’s (headline) inflation in full-year 2025 at 2.0 percent (y/y).
Normally, our inflation analysis is only available to subscribers. However, since BPS only released the inflation data on 8 April 2025 (meaning this story could not be included in the monthly report that was published on 5 April 2025), we decided to release this article for free on our website.
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