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Understanding inflation rates in a political year
The continuation of the safety net program indirectly confirms that the government recognizes that “real” inflation is higher than the officially reported inflation.
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People in need: Residents of the Cibeunying Kidul area of Bandung bring home social assistance packages on May 4, 2022. The assistance was part of the social protection program to mitigate the impact of the COVID-19 pandemic. (Antara/Raisan Al Farisi)
T
he “new” inflation for 2024 has been released. Statistics Indonesia (BPS) noted that the consumer price index (CPI) increased from 105.15 in December 2023 to 105.19 in January 2024. Thus, inflation in January 2024 on a month-to-month (mtm) basis reached 0.04 percent, whereas annual inflation was 2.57 percent.
At first glance, the above figures seem to be reasonable. The inflation rate is within the tolerance interval. The annual inflation target throughout 2024 is set at 2.5 percent plus/minus 1 percent. The monthly inflation rate – even if annualized (0.48 percent) – is also within the target range.
However, inflation data cannot stand alone. It cannot tell much if seen as it was at a particular point. The indicator of inflation is only able to speak loudly when juxtaposed and compared with other points.
By definition, inflation is the percentage change in the CPI. The CPI is based on the results of the cost of living survey (SBH). The SBH results determine the weight of consumption value. The inflation calculations starting from 2024 use the 2022 SBH as well as the new CPI base year replacing the 2018 SBH.
The SBH update from 2018 to 2022 is to capture lifestyle changes. Technological developments, income, supply of and demand for goods/services, quality and quantity of goods/services, as well as attitudes and behavior alter people's consumption patterns, so that inflation weight calculations are more accurate.
The main problem is the 2022 SBH was conducted during the pandemic. The COVID-19 pandemic in Indonesia was a very fundamental, extraordinary and unprecedented event that hit all aspects of life. As a consequence, the consumption pattern obtained was extraordinary. The extraordinary consumption patterns produced unusual consumption values. An unusual consumption value, if used as a weight in constructing the CPI, yields an anomalous inflation magnitude.
The official data presented at the beginning of this article confirms the above thesis. Taking the example of annual inflation in January 2024 (2.57 percent) based on the SBH 2022, it is lower than annual inflation in December 2023 (2.61 percent) which refers to the SBH 2018.
