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Indonesia looks to future, recording low inflation and high output
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anuary 2024 proved to forecast a bright future for Indonesia as the country was able to maintain inflation near the target of 2.5 percent. The Consumer Price Index (CPI) inflation for January 2024 was recorded at 2.57 percent year-on-year (yoy), a decrease compared to 2.61 percent yoy in December 2023. This inflation realization is also lower than the January 2023 inflation rate of 5.28 percent yoy.
"We are grateful that inflation in January remained under control. Amid continued high uncertainty, including ongoing weather disturbances from El Niño, we have been able to control inflation within the target range. The stable inflation achievement within this target range indicates that our purchasing power is still strong," Coordinating Economic Minister Airlangga Hartarto said on Feb 2.
One of the factors attributed to inflation in January was the volatile movement (VF) of price components, which increased by 0.01 percent month to month (mtm) and 7.22 yoy. Moreover, heavy rainfall in horticultural centers led to crop failures and increased prices for tomatoes and shallots.
This all comes on top of a limited supply of rice coupled with high demand, before harvest season. However, VF inflation was restrained by the declining prices of various chili varieties.
Core components experienced inflation of 0.20 percent mtm or 1.68 percent yoy. Yearly core inflation remained stable despite a declining trend. Meanwhile, government-regulated administered prices (AP) experienced deflation of 0.48 percent mtm or inflation of 1.74 percent yoy.
AP deflation was mostly caused by a reduction in air transport and gasoline tariffs following the end of the holiday season, which led to decreased demand for air transportation and adjustments to non-subsidized fuel prices starting on Jan. 1, 2024.
To ensure that Indonesia can maintain the current inflation level, a high-level ministerial inflation control team meeting was held on Jan. 29. Among several strategic measures to be implemented in the coming year include consistent monetary and fiscal policies to support inflation control and economic growth, keeping VF group inflation below 5 percent, with a focus on rice, various chili varieties and onions, as well as ensuring the availability of food supplies and smooth distribution to mitigate short-term risks, including anticipating shifts in harvest seasons and increased demand ahead of public holidays.
"Amid the various challenges we face today, the commitment and synergy of all parties, including the central government, local governments and Bank Indonesia (BI), through the TPIP [Central Inflation Control Team] and the TPID [Regional Inflation Control Team], will continue to be strengthened to maintain inflation within the target range of 2.5±1%," Airlangga continued.
Optimism regarding future economic prospects is also reflected in the continued vibrancy of Indonesia's manufacturing sector. As evidenced by the Purchasing Managers' Index (PMI) report published by S&P Global on Feb. 1, the manufacturing sector's output in Indonesia in January continued to expand for 29 consecutive months, reaching a level of 52.9 and becoming the highest in the ASEAN region.
"The continuously expansive performance of the manufacturing sector deserves appreciation. The government will also continue to work hard to create a conducive business climate so that this positive performance can be further enhanced. Controlled inflation and continuously expansive PMI are expected to support sustainable economic growth," Airlangga concluded.
