Inflation Update Indonesia: Pressures Ahead of the Ramadan
The central bank of Indonesia (Bank Indonesia) expects the nation's May 2017 inflation rate to be relatively high at 0.37 percent month-on-month (m/m) due to rising food prices and transportation tariffs ahead of the start of the holy Ramadan month (the Islamic fasting month). A Bank Indonesia survey shows inflation had climbed 0.27 percent in the first three weeks of May. As the Ramadan has started in the fourth week, inflationary pressures should rise sharper in these last couple of days of the month.
While the Ramadan month is actually a month of self-constraint (for example people will not eat during daytime), demand for various retail products rises steeply in this period (including food items). This is because the Muslim community tends to "celebrate" Ramadan by organizing food parties in the early morning and evening. It is also the period when purchases of clothes, shoes and bags rises. Therefore, the Ramadan (and subsequent Idul Fitri celebrations) always trigger a peak of inflation in Indonesia (the other peak is in the December-January period amid Christmas and New Year celebrations).
Bank Indonesia Governor Agus Martowardojo said on Friday (26/05) that - approaching the Ramadan - the central bank detects high demand in Indonesia. Hence, prices of various food items have gone up. For example garlic, chicken meat, and eggs. Martowardojo added that discussions and coordination between the central bank and regional inflation control teams (TPIDs) lead to the conclusion that the public are purchasing large quantities of foodstuffs, possibly because they are not convinced that supplies are enough. This puts some additional pressure on supplies and prices. Therefore, Martowardojo says Bank Indonesia and the TPIDs need to reassure the people by informing that supplies are sufficient.
So far this year the pace of inflation in Indonesia is higher compared to last year. This is primarily caused by administered price adjustments (the government having cut electricity subsidies for 900 VA-households). If Bank Indonesia's forecast about May 2017 inflation is indeed correct then the nation's annual inflation rate would climb to around 4.30 percent (y/y) in May, closer and closer to the upper limit of the central bank's full-year 2017 inflation target (which is the range of 3 - 5 percent y/y). However, Bank Indonesia remains convinced that the full-year inflation figure will remain within its target range.
Inflation in Indonesia:
| Month | M/M Growth 2013 |
M/M Growth 2014 |
M/M Growth 2015 |
M/M Growth 2016 |
M/M Growth 2017 |
| January | 1.03% | 1.07% | -0.24% | 0.51% | 0.97% |
| February | 0.75% | 0.26% | -0.36% | -0.09% | 0.23% |
| March | 0.63% | 0.08% | 0.17% | 0.19% | -0.02% |
| April | -0.10% | -0.02% | 0.36% | -0.45% | 0.09% |
| 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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Laws of Supply and Demand apply in this case.