Bank Indonesia Sees Inflation at 4.15% Due to Fuel Prices

Jakarta: Bank Indonesia (BI) has projected that core inflation will rise to 4.15 percent year-on-year (yoy) this year and inflation expectations will also increase on the back of soaring non-subsidized fuel prices.
 
“In addition, volatile food price inflation and increasing inflationary pressure from the demand side have also boosted the forecast,” BI Governor Perry Warjiyo informed while announcing the results of the central bank’s board of governors’ meeting (RDG) for August, in Jakarta on Tuesday
 
Thus, he estimated, the consumer price index (IHK) inflation will also increase to 5.24 percent yoy by the end of this year, driven by high global energy and food prices as well as supply gaps.

In July 2022, the consumer price index inflation was recorded at 4.94 percent yoy, or higher than the inflation of 4.35 percent yoy the previous month.
 
Inflation in the volatile foods category was recorded at 11.47 percent yoy during the period, which was mainly influenced by rising global food prices and supply disruptions.
 
Inflation in the administered prices category also increased to 6.51 percent yoy, in line with the increase in air transportation and non-subsidized fuel prices.
 
“Meanwhile, core inflation was still relatively low at 2.86 percent (yoy) in July 2022, supported by the consistency of BI’s policies in maintaining inflation expectations,” he said.
 
According to Warjiyo, these developments are expected to push inflation in 2022 and 2023 at the risk of exceeding the upper limit of the target of 2–4 percent.
 
Therefore, stronger policy synergy is needed between the central and regional governments with BI on measures to control the increase in inflation.
 
Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan, earlier asked his team to prepare a model to review the increase in the inflation rate due to rising fuel prices, although it is still under control.
 
Speaking at a public lecture at Hasanuddin University, Makassar, South Sulawesi province, which was followed online from here on Friday, he said that Indonesia has been quite good at controlling the inflation rate.
 
According to Statistics Indonesia’s data, the inflation of 4.94 percent yoy in July 2022 was still lower compared to other countries and regions, such as the United States (8.5 percent), the European Union (8.9 percent), and Turkey (79.6 percent).
 
However, Indonesia’s inflation rate exceeded the government’s target of 3 percent yoy.
 
The coordinating minister noted that the change in the inflation rate will depend on the adjustment in the prices of diesel and Pertalite fuels, which are still being subsidized by the government.
 
Hence, he signaled that President Joko Widodo (Jokowi) will likely announce an adjustment in fuel prices soon to reduce the government’s subsidy burden, which has reached Rp502 trillion (US$33.8 billion).
 
“Our fuel prices are the cheapest in the region. They are far cheaper than (fuel prices in) other (countries) and they burden our state budget too much,” he remarked.
 
Hence, Pandjaitan asked the public to be prepared if fuel prices are increased.
 
“Because, we cannot maintain them (the prices) that way after all. To reduce the pressure on us (our state budget) due to the rising price of crude oil, we must be prepared,” he emphasized. 

 

(WAH)