Most of the current global inflation is caused by the increase in energy and food prices. Therefore, controlling energy and food prices is one of the keys to curbing inflation.
By
SIWI NUGRAHENI
·5 minutes read
Inflation haunts the world. In September 2020, the annual inflation rates in the United States and Europe, which exceeded 8 percent and averaged 10 percent, respectively, were the highest in the last 40 years. Inflation in some other countries has even exceeded 50 percent, such as in Turkey (80 percent), Argentina (78 percent) and Iran (52 percent).
The ghost of inflation is also lurking in Indonesia. Statistics Indonesia (BPS) reported that the annual inflation rate in September 2022 was 5.9 percent, the highest since 2014. Although the inflation rate in Indonesia is not as high as in the countries mentioned above, the prices tend to increase following the rise in subsidized fuel (BBM) in the country.
Most of the current global inflation is caused by the increase in energy and food prices. Therefore, controlling energy and food prices is one of the keys to curbing inflation. In the midst of the threat of inflation in Indonesia, the government’s village funds are expected to play a role in controlling inflation in rural areas.
Supply and demand side
If the market is defined as the meeting point of demand and supply, the cause of an increase in the price of goods is an increase in demand or a decrease in supply. The increase in demand can occur because the money circulating in the community is greater than the available goods. The people's desire to shop is growing, but the supply of goods is limited. As a result, the prices of goods rise.
Demand-pull inflation or price increases due to increased demand usually occurs seasonally, such as during the month of Ramadan (ahead of Idul Fitri) or before the turn of the year. Prices will fall again, or at least stop increasing, as people's desire to spend money decreases.
Inflation also occurs due to disruptions on the supply side. Crop failure, which often prompts a price increase, was one of the triggers for inflation. The rising geopolitical conflicts have caused the world's supply of wheat to decrease, making wheat in the global market more expensive than before.
In Indonesia, the increase in fuel prices and the depreciation of the rupiah against the US dollar also triggered inflation in the past.
Cost-push inflation is also occurring due to rising production costs. The disruption of the energy supply from Russia to Europe has triggered an increase in world oil prices and become a cause of inflation. In Indonesia, the increase in fuel prices and the depreciation of the rupiah against the US dollar also triggered inflation in the past.
In the midst of this difficult situation, village funds can be used to control inflation in rural areas and reduce its impact, especially related to inflation on the supply side of two commodities: food and energy.
The inflation in rural areas can be controlled by ensuring the availability of food and energy at affordable prices. Village funds can be used to finance various efforts to diversify food and energy sources, especially those from their own and surrounding areas, as well as measures to increase efficiency in their procurement.
In the worst-case scenario, village funds can be used to help the most-affected community groups. Thus, village funds are a very comprehensive and flexible instrument.
Opportunities
Villages are encouraged to explore various possible sources of local food and energy to secure supplies. In the context of rice, the self-sufficiency achieved during the last three consecutive years (2019-2021) has indicated that securing sufficient rice supply is not impossible to realize. The same effort needs to be made for other food sources that still rely on imports, such as corn, soybeans and animal products and their derivatives.
In addition to increasing the range of types of food commodities that are targeted for self-sufficiency, it is also necessary to improve its storage and post-harvest processing.
Remember the President's aid rice that had to be discarded because it was damaged due to inadequate storage? It should also be noted that Kompas made extensive reports on food waste. Food production that cannot be used is a waste of resources.
Much can be done to reduce food spoilage, but the point is collaboration. Technically there is an opportunity to apply the work of researchers in the field of agricultural product processing. Financially, this is an opportunity for entrepreneurs to market new products.
The cooperation between food-crop farmers, researchers and owners of capital would not only increase efficiency in the food-production sector, but also create job opportunities.
This would be a big step for village life in the long term.
The use of village funds to curb inflation in rural areas can also promote village independence in the long term. The development of local energy sources, for example, can reduce the village's dependence on external energy supplies. This would be a big step for village life in the long term.
There are many villages which have developed renewable-energy sources, such as micro-hydro/pico-hydro and solar energy as a source of electricity generation. Now is the time to explore the potential of biomass (other than biogas) as an energy source for cooking. As long as the energy source is renewable, it can be potentially applied permanently toward an energy-independent village?
The use of village funds to tackle inflation, which was initially used for short-term purposes, has the opportunity to achieve the long-term village development goal: an independent and productive village.
FE UNPAR
Siwi Nugraheni
SIWI NUGRAHENI,lecturer at the School of Economics, Parahyangan Catholic University
This article was translated by Hendarsyah Tarmizi.
