Consumer Price Index Update Indonesia: June Inflation to Exceed 1% m/m
A survey, conducted by Indonesia's central bank (Bank Indonesia, BI), indicates that Indonesian inflation has risen 0.59 percent in the first week of June 2016, implying that there is a big chance that inflation will reach beyond the 1 percent (m/m) level in the full-month, perhaps even touching 2 percent (m/m). The main cause of inflationary pressures in Indonesia in this month is food prices. Amid Ramadan festivities - which boost demand for food items - prices of beef, chicken meat, cooking oil, eggs, onions, and chilies have risen.
Although the holy Islamic Ramadan month is a month characterized by self-control, consumption always peaks during the fasting month and Idul Fitri celebrations (Idul Fitri marks the end of the Ramadan month). During Ramadan, Indonesian people tend to break the fast in the evening at dinner parties with plenty of food items to choose from. Meanwhile, ahead and during Idul Fitri millions of Indonesians travel back to their places of origin to spend a couple of days with their families, a tradition called mudik. This mudik tradition gives rise to a huge boost in terms of money circulation in Indonesia as the millions of people who travel from the cities to the villages carry trillions of rupiah (hundreds of millions of US dollars) with them (supported by the pay out of workers’ 13-month salary). All in all, this causes upward pressure on several food commodity prices but also on other consumer goods such as clothes.
Mohammad Faisal, Director of Research at the Center of Reform on Economics (CORE), said the current price pressure on several food commodities (for example, chicken meat, onions, and eggs) are caused by distribution problems, not so much by supply-related troubles (with the exception of beef, which needs to be imported from abroad). Cartels and speculators are often behind the lack of smooth distribution in Indonesia. Meanwhile, this year there will be few inflationary pressures stemming from transportation costs on the back of the lower crude oil prices in 2016.
Bank Indonesia Governor Agus Martowardojo requests the central and local governments to carefully monitor food prices - specifically rice, sugar, chicken meat, beef, onions, and chilies - in order to safeguard stable prices. Particularly outside the island of Java, inflationary pressures on food prices are high (up to two-digit figures during the Ramadan and Idul Fitri festivities). Despite the high inflation figure so far in June 2016, Martowardojo says the central bank's target of 3 - 5 percent (y/y) inflation in full-year 2016 is not at risk.
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% | |
| July | 3.29% | 0.93% | 0.93% | |
| August | 1.12% | 0.47% | 0.39% | |
| September | -0.35% | 0.27% | -0.05% | |
| October | 0.09% | 0.47% | -0.08% | |
| November | 0.12% | 1.50% | 0.21% | |
| December | 0.55% | 2.46% | 0.96% | |
| Total | 8.38% | 8.36% | 3.35% |
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank 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 | |
| Bank Indonesia Target (annual % change) |
5.0 | 4.5 | 5.0 | 5.0 | 4.5 | 4.5 | 4.5 | 4.0 | 4.0 |
Source: Bank Indonesia