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Sapping rupiah raises inflation risk as imports cost more
While the government has tried to curb growing worries over the depreciating rupiah, Apindo and economists have pointed to pass-on costs and "double inflationary pressures" as potential scenarios that should be anticipated.
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A clerk counts United States banknotes on May 22, 2024, at a money changer in Jakarta.
(Antara/Rivan Awal Lingga)
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usinesses and analysts warn that further weakening of the rupiah against the United States dollar could increase inflationary pressures as it become more expensive to import goods, which makes up a significant portion of inputs for domestic manufacturers.
While some producers might consider absorbing the extra burden for a narrower margin, others could consider passing on excess costs to consumers, resulting in what is known as imported inflation.
Syafruddin Karimi, an economist from Andalas University, said the food, manufacturing and energy industries were particularly prone to the latter practice, given their heavy reliance on raw material imports.
“Seeing the rupiah’s weakening trend over the past few weeks, the situation is indeed something to be cautious about,” he told The Jakarta Post on Thursday.
“If the weakening continues without effective intervention, the pressures on basic goods prices will become more intense,” Syafruddin added, saying that imported inflation might be imminent.
The rupiah’s exchange rate against the greenback has been on a downward trend since the turn of the year.
Investing.com readings showed the national currency traded momentarily on March 25 at Rp 16,654 against the US dollar, breaching the previous low of Rp 16,640 recorded in March 2020 due to the local onset of the COVID-19 pandemic.
