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Indonesia braces for high inflation
The government is rolling out new social aid programs to cushion the effect of high inflation on low-income groups.
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Basic commodity sellers line up to purchase cooking oil during a market operation at Karangampel traditional market in Indramayu regency, West Java, on Feb. 23. (Antara/Dedhez Anggara)
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he government has rolled out new social aid programs and is restructuring the state budget to cushion the effect of soaring consumer prices on low-income Indonesians.
The Office of the Coordinating Economic Minister launched a wage subsidy for 8.8 million low-income workers this week, as well as cash aid for 12 million micro, small and medium enterprises (MSMEs) and direct cash transfers for cooking oil for 23 million homes and small businesses.
The government had intended to discontinue the first two programs, which were introduced last year, on hopes that the country would achieve a full economic recovery this year. The new programs add to existing social aid programs like the Staple Food Card, Family Hope Program (PKH) and village fund unconditional cash transfers (BLT Dana Desa).
"There will be a transmission of [rising global prices] to the domestic market, which the government cannot completely pass on to the people. Therefore, [President Joko ‘Jokowi’ Widodo] has ordered a strengthening of social protection measures,” Airlangga said at a media briefing after a Cabinet meeting in Jakarta on Tuesday.
Read also: World Bank lowers Indonesia’s growth forecast to 5.1%
Rising global commodity prices contributed to a nearly two-year domestic inflation high of 2.64 percent year-on-year (yoy) in March. It was the steepest climb since April 2020 but still within Bank Indonesia's (BI) target range of 2 to 4 percent. The government’s removal of a price cap on cooking oil was a main driver of the price surge.
Economists expect domestic inflation to keep rising in the coming months in response to the removal of more price controls, higher domestic demand amid easing COVID-19 curbs and the Ramadan and Idul Fitri holidays and a hike in value-added taxes (VAT) that started on Friday. There is also the risk of a continued rise in global commodity prices due to the Ukraine war.
