Indonesia's inflation accelerated sharply starting from June as the Indonesian government increased prices of subsidized fuels in late June by an average of 33 percent. Other factors that contributed to the country's high inflation rate were the holy Muslim fasting month of Ramadan (9 July - 7 August) and subsequent Idul Fitri celebrations (8 August). These Islamic events always trigger higher food prices as well as higher prices for products such as clothes and shoes. Lastly, in recent months Indonesia experienced multiple shortages of certain food products due to weak government policies (import quotas), which made prices surge high. Now, however, these issues are waning, thus making room for September's deflation.

Food products that contributed to September's deflation rate included shallots, chilies, beef, chicken meat and garlic. Furthermore, transportation prices such as train tickets, airfares and inter-city transport fell from the previous month.

Higher inflation since June was the main reason that Indonesia's central bank (Bank Indonesia) raised its benchmark interest rate (BI rate) gradually from 5.75 to 7.25 percent between June and September. However, this measure comes at the expense of economic expansion. The Indonesian government, central bank as well as various international institutions (including the World Bank and International Monetary Fund/IMF) have downgraded their outlook for Indonesia's economic growth in 2013 to between 5.3 and 5.9 percent, mainly due to weakening domestic consumption (which accounts for about 55 percent of Indonesia's economic growth), and weak global demand for Indonesia's commodities, thus limiting exports.

Indonesia's Finance Minister, Chatib Basri, still expects a high inflation outcome at the year-end. According to him, inflation may accelerate to 9.2 percent (yoy) by the end of 2013. In October and November, deflation is likely to continue. In December, however, inflation is a common phenomenon as people and the government increase spending towards the end of the year. Bank Indonesia still believes inflation will range between 9 and 9.8 percent by the end of the year.

2013    Inflation
January      1.03%
February      0.75%
March      0.63%
April     -0.10%
May     -0.03%
June      1.03%
July      3.29%
August      1.12%
September     -0.35%
Total      7.57%
    2008   2009   2010   2011   2012   2013
(annual percent change)
   9.8    4.8    5.1    5.4    4.3    7.6¹

¹ year to date

      Inflation Rate
  September 2013
  Inflation Rate
  Calender 2013
  Inflation Rate
General            -0.35           7.57          8.40
- Core             0.57           3.95          4.72
- Administered Price             0.34          15.04         15.47
- Volatile            -3.38          12.49         13.94

Source: Statistics Indonesia