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Jakarta Post

Indonesia records ‘unusually’ low inflation in Ramadan as COVID-19 hits consumer spending

  • Adrian Wail Akhlas

    The Jakarta Post

Jakarta   /   Mon, May 4, 2020   /   02:59 pm
Indonesia records ‘unusually’ low inflation in Ramadan as COVID-19 hits consumer spending Vegetable vendors serve customers at Bandarjo Market in Semarang regency, Central Java, in this undated photo. (Antara Photo/Aditya Pradana Putra)

Indonesia recorded “unusually” low inflation at the start of Ramadan in April as the COVID-19 pandemic reined in household spending, according to Statistics Indonesia (BPS).

The consumer price index (CPI) stood at 0.08 percent in April, much lower than the 0.44 percent recorded in the same month last year, the BPS announced on Monday. The annual inflation rate was recorded at 2.67 percent, slightly lower than the 2.83 percent in April last year.

“This is unusual because usually there is higher demand for goods and services during the Ramadan month,” BPS head Suhariyanto said in a livestreamed news conference. This year’s Ramadan started in late April.

“There is lower demand of goods and services as a result of a slowdown in economic and social activities caused by the large-scale social restrictions [PSBB],” Suhariyanto said. “This points to weaker household purchasing power.”

Read also: Sufficient food supply, weak demand to lower April inflation: BI

Several regions in Indonesia such as Jakarta, West Java and East Java are implementing large-scale PSBB to contain the COVID-19 spread, forcing factories and retail shops to close as people stay at home. This has slashed household demand as up to 2.8 million people had lost their jobs as of mid-April.

BPS data revealed that the personal care segment saw the highest inflation of 1.2 percent in April, followed by health with 0.23 percent inflation and restaurants with 0.18 percent inflation.

Meanwhile, the core inflation stood at 0.17 percent in April, bringing the annual rate to 2.85 percent, while administered prices and volatile food prices saw deflation of 0.14 percent and 0.09 percent, respectively.

Gold jewelry, a safe-haven asset in times of global uncertainty, was a dominant commodity that contributed to inflation in April, said Suhariyanto. The price of bullion sold by state-owned miner PT Aneka Tambang has surged around 20 percent so far this year.

“This is the lowest inflation at a beginning of Ramadan,” Bank Mandiri chief economist Andry Asmoro wrote in a research note.

“We revise down our 2020 inflation forecast to 2.69 percent from 3.25 percent […] because of the government’s plan to reduce some administered prices, including electricity and fuel, and transportation fares,” Andry said. “The government, moreover, has ensured that food supplies will remain secure until the end of the year. Thus, there is no significant pressure from cost-push inflation.”

Rising gold prices caused by higher uncertainty in financial markets as a result of the outbreak, the limited impact of increasing money supply from economic stimulus packages and higher prices of imported food would drive this year’s inflation calculations, Andry added.

The government has allocated Rp 405.1 trillion (US$24.6 billion) in extra spending for COVID-19 efforts, focusing on health and social spending, as well as economic stimulus packages.

Read also: Panic buying hurts consumption growth in the long run, analysts say

“With the country not quite under a large-scale lockdown, we believe that containment measures that have so far been adopted by the government will disrupt spending but will not lead to an immediate stoppage,” Fitch Solutions wrote in its research note on April 22.

“Indeed, ahead of the Ramadan period and Eid festival, Indonesians will have ramped up purchases of food stuffs and discretionary items. As such, while consumer confidence is on the decline, it has not crashed into contractionary territory yet.”

It expected consumer spending growth, which accounts for more than half of Indonesia’s economy, to tank to 1.2 percent this year from 5 percent last year.