Curbing Inflationary Pressure

KOMPAS/RADITYA HELABUMI

Finance Minsiter Sri Mulyani Indrawati

The rising prices of a number of basic needs and the creeping rise in inflation in Indonesia show that the spreading impact of global inflation is becoming more difficult to curb.

A number of international institutions have warned that apart from global supply chain disruptions and the Russian-Ukrainian war, another thing that must be anticipated is the effect of the moves of central banks in developed countries, which are predicted to raise their interest rates faster than expected to stem inflation in those countries.

Interest rate hikes in developed countries have the potential to trigger an inflationary spiral in developing countries. Interest rate hikes in developed countries could prompt capital flight and pressure exchange rates in developing countries.

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The weakening exchange rate, coupled with the increasing tightening in global finance has the potential to increase the debt burden of developing countries due to soaring borrowing costs, thereby worsening the debt crisis many developing countries are currently experiencing. Global stagflation is also becoming a real threat.

Compared to many other countries, inflation in Indonesia is relatively low and under control, but the figure is continuing to climb. The relatively good production of staple foods is the primary factor keeping food inflation under control.

Finance Minister Sri Mulyani Indrawati warned about the threat of inflation that still hangs over the Indonesian economy. Compared to many other countries, inflation in Indonesia is relatively low and under control, but the figure is continuing to climb. The relatively good production of staple foods is the primary factor keeping food inflation under control.

However, the situation could worsen if global inflation and its causes are not addressed immediately. The International Monetary Fund (IMF) has predicted that global inflation will ease in 2023, but many economists are worried that food inflation will still be a threat for the next three years.

The high dependence on imports makes us vulnerable, because even though the agricultural trade balance is still at a surplus due to exports of crude palm oil (CPO) and derivative products, the imports of eight major food commodities have continued to increase over the last three years. It is vital to maintain supplies of the main food commodities.

In order to deal with the increasing uncertainty caused by global inflation, coordinated response, strategy, and policy are important. We appreciate the various initiatives that have been taken by the fiscal, monetary and financial authorities, including the efforts of Indonesia and President Joko Widodo at the G20 to overcome the global crisis, including lobbying the leaders of Russia and Ukraine to help guarantee world food supplies.

In the short term, our challenge is to maintain price stability and growth momentum. From the monetary side, prudent tightening measures are needed so that the efforts to control inflation do not interfere with economic recovery.

Efforts to control inflation must also be accompanied by reform in the real sector, because higher inflation is mostly triggered by the supply side.

From the fiscal side, the blessings of the commodity boom should be allocated to those sectors experiencing major supply chain disruption that have impacted growth and social protection for the poor and other vulnerable groups. Efforts to control inflation must also be accompanied by reform in the real sector, because higher inflation is mostly triggered by the supply side.

Among businesses, global inflation has substantially raised the prices of all raw material commodities and forced them to diversify raw materials and improve supply chain efficiency to maintain production. In the long term, the work to be done includes strengthening economic resilience, including food and energy security, so they are more resilient to external shocks and disruptions to global supply chains.

(This article was translated by Hyginus Hardoyo)