Keeping Inflation, Maintaining Purchasing Power

KOMPAS/DIAN DEWI PURNAMASARI

The atmosphere of traditional markets in Jakarta in the midst of the threat of inflation.

There are fears that high inflation in many countries will infect Indonesia, but careful and appropriate policies can prevent its spread to the country.

Thus far, the government still believes that the policy mix being implemented will reduce inflation, which is at its highest at 4 percent.

Fiscal policy is aimed at preventing an increase in the energy prices of fuel oil and electricity. Meanwhile, monetary policy is being carried out by increasing the statutory reserve requirement for banks to contain the money supply.

Bank Indonesia is also maintaining the benchmark interest rate at a level that allows the business world to move freely. It is hoped that inflation will remain low and economic growth and recovery will not be disrupted.

Also read:

> Increasing Inflation and Economic Recovery

> The World and Inflation

Russia's invasion of Ukraine has led to an increase in world energy and food prices. Russia's occupation is likely to last for a long time so energy and food prices, especially grain, will not come down immediately.

Indonesia's current maintained inflation, namely at 3.47 percent in April 2022 on year-on-year basis, shows that the Indonesian economy is protected from the effects of global inflation while at the same time experiencing stagnation in growth.

However, price increases cannot be held back for too long so the impact on inflation in the third or fourth quarter must be taken into account.

However, one thing that must still be monitored is the increase in the producer price index, which according to data from Statistics Indonesia (BPS), tended to increase in the first quarter of 2022 compared with the final quarter of 2021. This data indicates the possibility that producers are still holding back on price increases to maintain public consumption. However, price increases cannot be held back for too long so the impact on inflation in the third or fourth quarter must be taken into account.

FS

Demonstrators shout slogans during a protest outside the Russian consulate in Istanbul, Turkey, Friday, Feb. 25, 2022, after Russian troops have launched an invasion on Ukraine.

Currently, Indonesia is benefiting from the increases in world prices for our export commodities, namely palm oil, coal and mining materials. The government has fiscal flexibility to subsidize fuel oil and electricity.

We need to appreciate the government's steps to provide electricity subsidies to the poor and vulnerable groups, while electricity rates for 2 million households using 3,500 volt amperes and above will increase starting 1 July 2022. We hope that fuel subsidies can also be given more selectively.

For Indonesia, food still contributes to inflation since more than half of household spending goes on food.

Attention needs to be paid to food prices. Rice prices are relatively stable, but prices for other foodstuffs have moved up compared with the beginning of the year. For Indonesia, food still contributes to inflation since more than half of household spending goes on food.

We need harder, more careful and conscientious efforts to control food prices. The most obvious example is that the increase in cooking oil prices also increases inflation, but on the other hand, oil palm farmers complain that their fresh fruit bunches are not purchased by palm oil mills.

Efforts to control inflation are therefore not sufficient only from the monetary and fiscal perspective in the form of subsidies. We want food prices to remain affordable without compromising producers and farmers.

(This article was translated by Hyginus Hardoyo)