Statistics Indonesia (BPS) reported on Monday that the consumer price index (CPI) was up 1.87 percent year-on-year (yoy) in December 2021 — the highest seen since July 2020. On a monthly basis, the inflation rate was 0.57 percent, or the highest level in two years.

“In the last three months, we saw an uptick in core inflation on a yoy basis, indicating an improvement in people’s purchasing power,” BPS head Margo Yuwono said in a press briefing on Monday.

The full-year inflation figure of 1.87 percent remained lower than BI’s target range of between 2 and 4 percent.

Consumer prices picked up in December 2021, as people routinely raise their spending during Christmas and New Year, mostly on food and beverages and travel. The ongoing pandemic, however, kept them below normal levels.

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The food, beverages and tobacco expenditure group was the primary driver of the monthly inflation in December, contributing 0.41 percentage points. The commodities that drove the prices include cayenne pepper, cooking oil, chicken eggs, chicken meat, red chili pepper, fresh fish and some vegetables.

The transportation expenditure group was the second-largest contributor to the December inflation. Airfare was the largest contributor. Meanwhile, goods shipment services posted a deflation.

The core CPI was up 1.56 percent in December 2021 from a year earlier. Volatile price annual inflation was recorded at 3.20 percent and government-administered price annual inflation at 1.79 percent.

On the supply side, the wholesale price index (WPI) rose by 2.91 percent yoy in December 2021, driven by the mining sector. The agriculture WPI was down 0.46 percent from a year earlier.

Faisal Rachman, an economist at state-owned publicly listed Bank Mandiri, said both the monthly and annual inflation rates were higher than the forecast of 0.53 and 1.83 percent, respectively.

For this year, the inflation rate is forecast to stand at 3.30 percent, according to the bank. This will mark a return to the central bank’s target range.

Aside from supply-side pressures, consumer prices are expected to bear the burden of a rise in value-added taxes (VAT), tobacco excises and public transportation fees, as well as the phase-out of some tax incentives and Premium gasoline, among other things.

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Faisal added that consumer prices in the healthcare, information and communication sectors were expected to post a deflation as spending fell with the world transitioning from living with COVID-19 as a pandemic to an endemic illness.

“We expect the inflation trend to keep increasing moving forward,” Faisal wrote in an analysis on Monday.

“We believe that the demand-side inflationary pressure [demand-pull inflation] will continue in 2022 following improving public mobility, along with the easing of PPKM [public activity restrictions] and vaccinations, which in consequence, will increase money velocity.”

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