A customer shops at a retail shopping center in Tebet, South Jakarta, on Thursday (27/7). Based on data from the Indonesian Retailers Association, retail spending growth in June only increased by 5-6 percent, or only a tenth of last year’s growth of 11.75 percent in June. The need to spend on school tuition and other education costs during June is one of the causes underlying the declining interest in buying goods.
JAKARTA, KOMPAS – Indonesia’s inflation remained under control in July this year as a result of price stability. However, amid the uncertainties of the global economy, the low inflation could be an indication of sluggishness in the national economy.
The inflation target, an important economic indicator, was set at 4 percent in the 2017 State Budget. It was later raised to 4.3 percent in the 2017 Revised State Budget.
Central Statistics Agency (BPS) head Suhariyanto told a press conference on Tuesday in Jakarta that monthly inflation rose 0.22 percent in July, while total inflation during the January-July period was 2.60 percent. Meanwhile, inflation in July rose 3.88 percent year on year.
The inflation rate was based on a BPS survey carried out across 82 cities. Fifty-nine cities experienced inflation, while the remaining 23 cities experienced deflation.
"The July inflation was lower compared to the same period in previous years. This was because of the normalization of Idul Fitri [prices], also because the impact of the electricity tariff increase is no longer felt. Transportation costs, which rose sharply rose last month, have also [stabilized]," Suhariyanto said.
The highest inflation was recorded in spending on education, recreation, and sports, which rose 0.62 percent and contributed 0.05 percent of the July inflation, followed by the expenditure for processed food products, beverages, cigarettes, and tobacco, which rose 0.57 percent with a contribution of 0.10 percent.
Meanwhile, food prices rose 0.21 percent, contributing 0.04 percent of the July inflation. Other expenditures also saw low inflation and lower contribution.
Deflation was recorded in spending on transportation, communications and financial services, which declined by 0.08 percent. This was due to the normalization of intercity transportation fares, which had risen sharply during the Idul Fitri holidays.
The rise in July’s consumer price index was mainly caused by a 0.26 percent rise in core inflation, with a contribution of 0.16 percent. The core inflation, a component of inflation that indicates the long-term inflation trend, remained stable. This was influenced by three fundamental factors.
First is the demand-supply interaction. Second is the external environment, such as exchange rates, commodity prices, and inflation of trading partners. Third is the inflation expectation of traders and consumers.
The government\'s regulated price component rose 0.07 percent, contributing 0.02 percent of inflation, while the volatile price component rose 0.17 percent, a 0.04 percent contribution in the July inflation.
Ideally, Suhariyanto said, the low inflation could maintain the people\'s purchasing power, to increase household consumption. However, ascertaining whether or not household consumption grows could be seen in the performance of gross domestic product (GDP) in the second quarter of this year, which the BPS will announce on Aug. 5.
Combination
Contacted in Yogyakarta, the head of Gadjah Mada University’s Center for Economic and Public Policy Studies, A Tony Prasetiantono, said that the low inflation in July was caused by a combination of two factors. "There are two factors that contributed to the low inflation," said Tony.
The first factor is the success of the government and all stakeholders in controlling inflation. In addition to monetary discipline in ensuring that there was no extra increase in the supply of money, a significant supply of goods also contributed to the low inflation. The ability to maintain the stability of the rupiah also contributed significantly.
The second factor is the sluggish purchasing power. Tony suspected that low consumer confidence led to the fall in the demand for consumer goods. Next, manufacturers were either lethargic or lackluster. This was reflected in the low expansion of bank credit, which remains below double digits. "All this led to the low inflation," he said.
Three years
Weak household consumption has lasted for at least three years. This was caused by the unclear direction of the global economy, Tony said.
"The market has no clear direction where to go. Donald Trump\'s strange attitude, Brexit, and China\'s economic prospects all cause uncertainties. If these giant economies have confusing direction, what about Indonesia," saidTony.
