The central bank of Indonesia (Bank Indonesia) predicts mounting inflationary pressures in the months June and July due to the Ramadan and Idul Fitri festivities, the possible impact of the El Nino weather phenomenon, and the new school year. Bank Indonesia expects to see inflation at 0.66 percent month-to-month (m/m) in June 2015, particularly driven by volatile food prices (a normal phenomenon ahead of Idul Fitri). On a year-on-year (y/y) basis, Indonesian inflation is expected to accelerate to 7.40 percent, from 7.15 percent in May.
The Islamic holy fasting month (Ramadan) and subsequent Idul Fitri celebrations always cause heavy inflationary pressures in the June-July period (another peak in Indonesian inflation traditionally occurs in December-January due to Christmas and New Year celebrations) as consumer increase spending on various products (such as food, clothes, shoes, bags, etc.). This means that the Indonesian government needs to increase efforts to safeguard a smooth flow of goods (distribution channels) to avert a surge in inflation by ensuring commodity supplies to reach consumers in regions across the archipelago. In several regions troubled distribution networks have already resulted in high inflation. One of Indonesia’s characteristics is that it is plagued by the lack of quality and quantity of infrastructure, hence leading to high logistics costs and supply shortages.
Meanwhile, it is increasingly believed that the El Nino weather phenomenon will hit Indonesia in the next couple of months. Over the past month reports have already surfaced that unusual dry weather has been impacting negatively on harvests of agricultural commodities in several parts of Southeast Asia.
Inflation in Indonesia:
|Month|| Monthly Growth
| Monthly Growth
| Monthly Growth
Source: Statistics Indonesia (BPS)
Inflation in Indonesia 2008-2014:
(annual percent change)
Source: World Bank
British multinational banking and financial services company Standard Chartered sees Indonesia’s headline inflation picking up to 0.6 percent (m/m), or, 7.3 percent (y/y) in June 2015 driven by higher food prices due to stronger consumer demand during the Ramadan month. Meanwhile, core inflation is expected to remain unchanged at 5.0 percent (y/y) according to Standard Chartered. However, the bank sees Indonesian inflation easing to 3.7 percent (y/y) by the end of 2015.
Continued rupiah depreciation also adds to inflationary pressure as it raises costs for companies that rely on imported goods. So far in June, Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 1.10 percent to IDR 13,356 per US dollar on Monday (29/06). Indonesia’s economic slowdown, high inflation, the central bank’s high interest rate environment, and the depreciating rupiah have caused Indonesian purchasing power to drop.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
Bank Indonesia Governor Agus Martowardojo recently stated that Indonesia’s capital city of Jakarta accounts for about 20 percent of total national inflation in Indonesia. Inflationary pressures in Jakarta are largely caused by three components: rental property, public transportation, and food prices.
Statistics Indonesia (BPS) will release Indonesia’s official June inflation figure on 1 July 2015.