However, is that good news, really? Well, this headline inflation rate is particularly pushed up by volatile food prices such as rice. Food items such as rice are among the items households simply have to purchase and therefore it doesn’t really expose the state of consumers’ purchasing power. In fact, in the case of rice it is supply trouble that is causing price increases, rather than a significant rise in demand (until around two months ago, Indonesia saw very little rainfall due to the El Nino weather effect that consequently damaged harvests).

Core inflation is a much better indicator to measure purchasing power as it excludes volatile food prices and government-administered energy prices. Over the past year we saw rapidly sliding core inflation. However, it may now be bottoming out as the core inflation rate didn’t change in February 2024. Based on the latest data from the Statistical Office (Badan Pusat Statistik, BPS), Indonesia’s core inflation rate stayed at 1.68 percent year-on-year (y/y) in February 2024, unchanged from the previous month.

Chart A (on the next page) shows how core inflation has reached a remarkably low rate; a level Indonesia normally only experiences in times of crises. In recent months we have been speculating whether this still constitutes normalization after the rapid recovery from the COVID-19 crisis, or reflects weakening household consumption (despite the GDP data not showing alarming household consumption trends, albeit household consumption was a bit soft in Q4-2023), or – and this is a new possible factor – it is China that has been ‘exporting’ deflation to the world. In this month’s article about trade we devote some attention to this issue. In sum, it involves Chinese exporters shipping their goods for cheaper prices to overseas destinations as China’s domestic market shows a decline in demand. This too could explain sliding prices in Indonesia. And of course it is also possible that we are seeing the combination of all factors above that have pushed Indonesian core inflation into low territory. For sure, Indonesia’s core inflation rate is something we will continue to monitor very closely in the coming months.


Read the full article in our February 2024 report (an electronic report, PDF) that can be ordered by sending an email to or a message to +62.882.9875.1125 (including WhatsApp).

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