Inflation under control: Jakarta

Indonesia food prices are pushing up inflation. Source: Pixabay

Inflationary pressure is expected to remain a low priority for the Bank Indonesia (BI) after a small increase last month due to predominantly controllable food price rises.

The Central Statistics Agency (BPS) said prices increased by 0.14 per cent on a month-on-month basis during October, making inflation reach 2.11 per cent from January to October.

Meanwhile, year-on-year inflation remained at 3.31 per cent in October compared with 3.07 per cent in September.

An increase in property rents and electricity and water charges helped push inflation to 0.56 per cent, followed by processed food, beverages and cigarettes at 0.24 per cent. Raw food, including eggs, poultry, shallots and fish, fell by 0.21 per cent.

Administered price goods, which are regulated by the authorities, showed the highest inflation with 0.57 per cent.

“The pattern is unusual as it is usually the volatile food price that moves wildly, not the administered price,” said BPS head Suhariyanto.

Last month the state-run electricity provider, PT PLN, increased electricity prices for around 12.5 million users.

“The decreasing gold price is caused by lower global price and also low demand from the domestic market in which people sold their jewellery after Idul Fitri celebrations,” Juniman, an economist at Maybank Indonesia, said.

“We project that inflation will stay at 3.15 per cent yoy [year on year] by year-end as there will be no spike in meat prices like what happened in December last year,” added Juniman. “The weakening purchasing power is not good for the economy in the long run.”

Indonesia’s economy relies heavily on private consumption, accounting for more than 60 per cent of growth and the archipelago’s gross national savings per GDP has remained stagnant, according to the Financial Services Authority (OJK), indicating that citizens are failing to save sufficiently are instead focusing on consumption. The IMF suggested that Indonesia’s gross national savings per GDP was 30.87 per cent last year, compared Singapore’s 46.73 per cent and 48.87 per cent in China.

Households only save on average 8.5 per cent of their total income, while analysts argue the level should be at least 20 per cent.

High food and transport costs eat into incomes, the agency said.