Bank Of Indonesia: Despite Five Consecutive Months Of Deflation, Economy Remains Resilient

Wednesday, 23 Oct 2024

Bank Indonesia (BI) has indicated that the Consumer Price Index’s (CPI) five consecutive months of deflation is not a cause for concern.

Deputy Governor Juda Agung stated that the current CPI realization remains within Bank Indonesia's target of 2.5±1%. Therefore, the observed deflation is not perceived as an excessive weakening of the economy.

"We do not view this as an excessive weakening of the economy," he remarked at the Bank Indonesia office on Wednesday, October 2, 2024.

Previously, the Central Statistics Agency (BPS) reported that Indonesia experienced deflation once again in September 2024, marking a continuous deflationary period lasting five consecutive months.

Nevertheless, on a year-on-year (y-on-y) basis, Indonesia still recorded an inflation rate of 1.84 percent, with the Consumer Price Index (CPI) at 105.93.

In September 2024, the month-to-month (m-to-m) deflation was recorded at 0.12 percent, while the year-to-date (y-to-d) inflation stood at 0.74 percent. The core inflation rate y-on-y for September 2024 was noted at 2.09 percent, with m-to-m inflation at 0.16 percent and y-to-d inflation at 1.69 percent.

In September 2024, more than half of the provinces in Indonesia experienced deflation in the Consumer Price Index (CPI). The ten provinces that recorded the most significant deflation were West Papua, South Papua, Mountain Papua, North Sulawesi, Aceh, West Sumatra, Central Papua, Papua, Riau, and Bengkulu.

BI emphasizes that inflation remains under control despite the five-month streak of deflation. The central bank attributes this stable inflation to consistent monetary policy and strong collaboration in inflation control between Bank Indonesia and the government (both central and regional) through the Central and Regional Inflation Control Teams (TPIP and TPID), bolstered by the National Movement for Food Inflation Control (GNPIP) across various regions.

Core components experienced an inflation rate of 0.16%, contributing 0.1% to the overall inflation. The primary commodities driving this inflation include ground coffee and academic/college fees.

The core inflation recorded in September 2024 is higher than the 0.12% noted in September 2023; however, it is lower than the 0.2% observed in August 2024.

In contrast, government-regulated components experienced a deflation of 0.04%, contributing 0.01%, primarily influenced by gasoline prices, following a decrease in non-subsidized fuel prices in September 2024.

Meanwhile, volatile components saw a more significant deflation of 1.34%, contributing 0.21%, mainly due to red chili, bird eggs, chicken meat, tomatoes, green onions, potatoes, and carrots.

The Coordinating Minister for Economic Affairs, Airlangga Hartarto, previously highlighted that the factors leading to deflation over the last five months are primarily linked to government-regulated prices and volatile prices, rather than core inflation.

The decline in the Consumer Price Index (CPI) is attributed to a reduction in volatile prices, which has been influenced by the efforts of the Food Security and Inflation Control Teams (TPIP and TPID). Additionally, government-regulated prices, including fuel, have shown signs of deflation in September 2024.

He stated, "If core inflation is the criterion for determining deflation, then it cannot be classified as deflation, nor does it indicate a decrease in purchasing power."

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