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ECONOMIC ARTICLE

Indonesia recorded a benign inflation rate in March as the government’s measures


to maintain food prices remain in check but the COVID-19 pandemic poses risks to
this year’s outlook, economists have said.

The consumer price index (CPI) stood at 0.1 percent in March, slightly lower than
the 0.11 percent recorded in the same month last year, Statistics Indonesia (BPS)
announced on Wednesday. The annual inflation rate was recorded at 2.96 percent,
much higher than the 2.48 percent in March last year but lower than the 2.98 percent
in February.

“March inflation was due to the price hike of commodities in the personal care and
food and beverage expenditure groups,” Bank Mandiri chief economist Andry
Asmoro wrote in a research note on Wednesday. “The inflation was related to
COVID-19 as the outbreak increased demand for hygiene products and online orders
of food and beverage due to the social distancing policy.”

The announcement of the country’s first two confirmed COVID-19 cases in early
March prompted Indonesians to stock up on hygiene products such as soaps, face
masks and hand sanitizers, resulting in a depleted supply of products and soaring
prices. The number of infections skyrocketed in a matter of days, prompting the
government to call on citizens to work, study and pray from home.

BPS data revealed that the personal care group saw a 0.99 percent price hike in
March while food and beverage recorded an inflation of 0.36 percent.

Meanwhile, gold, a safe haven asset in times of global uncertainty, became a


dominant commodity that contributed to the inflation in March, said BPS head
Suhariyanto. Bullion sold by state-owned miner PT Aneka Tambang has surged
around 20 percent so far this year.

Other products that saw a price hike include eggs, onions, sugar and cigarettes. The
transportation sector, however, saw a deflation of 0.43 percent in March with
consumers limiting or canceling their trips.

“The air transportation fare became a dominant deflation contributor at 0.06 percent
of March’s inflation number,” Suhariyanto said.

According to BPS data, Indonesia’s core inflation stood at 0.29 percent in March,
bringing the annual rate to 2.87 percent, while administered prices and volatile food
prices saw a deflation of 0.19 percent and 0.15 percent respectively, resulting in
annual inflation rates of 0.16 percent and 6.41 percent.

Staple food prices were generally under control thanks to the government’s
intervention and the looming harvest season, said Permata Bank economist Josua
Pardede.

The government took action to curb soaring prices of garlic and onion by temporarily
removing the import licensing requirement in March. Under the policy, importers no
longer needed import permit letters from the Trade Ministry and import
recommendations for horticulture products from the Agriculture Ministry. The
policy was in effect from March 19 to May 31.

Josua said he expected the inflation level to remain low in April despite the usual
price hike during Ramadan.

“Normally, demand for goods will increase during Ramadan but the holy month
won’t heavily affect the inflation rate this year as it coincides with the harvesting
season,” he said.

He projected this year’s full-year inflation to stay benign at between 2.9 and 3.3
percent, still within Bank Indonesia’s target of 2 to 4 percent as the pandemic was
expected to slow domestic consumption and economic growth. At the same time, the
government’s social distancing instruction and quarantine measures in several
regions would disrupt goods and services distribution in general.

“However, the risks might be offset by the government’s policy to maintain supplies,
particularly those of staples, and by its stimuli, such as electricity discounts,” he said.

Andry said he expected this year’s inflation would reach 3.25 percent.

“This relatively higher inflation forecast compared to the 2019 realization of 2.72
percent is caused by a higher risk of volatile inflation, particularly food inflation due
to the COVID-19 outbreak, which has limited the food supply,” he said.

The stable inflation, he went on to say, would support BI’s accommodative monetary
policy in 2020.
“Together with the Fed’s dovish stance and agenda to support the domestic
economy, we see that BI will hold the policy rate at 4.5 percent until the end of
2020,” Andry said. (The Jakarta Post)

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