Inflation Update Indonesia: Higher Fuel Prices Cause Inflationary Pressure
The central bank of Indonesia (Bank Indonesia) estimates that Indonesia’s inflation rate in March will be around 0.3 to 0.4 percent month-to-month (m/m), slightly higher than its earlier forecast of around 0.28 percent (m/m). Later this week, Statistics Indonesia will release the country’s March inflation figure. In February inflation eased to 6.29 percent year-on-year (y/y) - from 6.96 percent (y/y) in the preceding month - amid declining fuel and food prices despite some inflationary pressures caused by higher rice prices.
Indonesian inflation in March is expected to be slightly higher than previously forecast as the government decided to raise prices of subsidized fuels on Saturday (28/03). The price of subsidized low-octane gasoline was raised from IDR 6,900 (USD $0.53) to IDR 7,400 (USD $0.56) per liter, while the price of subsidized diesel was raised from IDR 6,400 (USD $0.49) to IDR 6,900 per liter. The government, which reformed its subsidized fuel policy at the start of the year (significantly cutting fuel subsidies), felt this price hike was necessary as crude oil prices increased and the rupiah continued to depreciate over the past month. After reforming the subsidized fuel policy, the government sets prices for subsidized gasoline and diesel each month, in accordance with the movement of global oil prices (which now tend to rise amid current turmoil in the Middle East).
However, as the higher fuel prices kick-in in the last couple days of the month only, its impact will be limited. Moreover, Deputy Governor at Bank Indonesia Perry Warjiyo said that fuel contributes around four percent to the country’s inflation rate. By raising gasoline and diesel prices by about 7 to 8 percent, the fuel hike will therefore contribute 0.04 percent only to inflation (but this impact will be mostly felt in April).
Inflation in Indonesia:
| Month | Monthly Growth 2013 |
Monthly Growth 2014 |
Monthly Growth 2015 |
| January | 1.03% | 1.07% | -0.24% |
| February | 0.75% | 0.26% | -0.36% |
| March | 0.63% | 0.08% | |
| April | -0.10% | -0.02% | |
| May | -0.03% | 0.16% | |
| June | 1.03% | 0.43% | |
| July | 3.29% | 0.93% | |
| August | 1.12% | 0.47% | |
| September | -0.35% | 0.27% | |
| October | 0.09% | 0.47% | |
| November | 0.12% | 1.50% | |
| December | 0.55% | 2.46% | |
| Total | 8.38% | 8.36% | -0.61% |
Source: Statistics Indonesia (BPS)Inflation in Indonesia 2008-2014:
Inflation in Indonesia:
| 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| Inflation (annual percent change) |
9.8 | 4.8 | 5.1 | 5.4 | 4.3 | 8.4 | 8.4 |
Source: World Bank