Bank Indonesia Concerned about the Impact of Floods on Inflation
Bank Indonesia, the central bank of Indonesia, is concerned that the ongoing flooding that occurs in several regions of the country will give rise to inflationary pressures as some distribution channels are blocked. Besides logistics issues, severe rainfall can disturb harvests hence impacting negatively on the supply-side. In several parts of Indonesia, including the capital city of Jakarta and the northern part of Central Java, there are reports of major floods.
A Bank Indonesia survey shows that Indonesian inflation has risen 0.35 percent month-on-month (m/m) or 3.95 percent year-on-year (y/y) from the start of February 2017 up to the second week of the month. Agus Martowardojo, Governor of Bank Indonesia, said he expects inflation to remain around 0.35 percent (m/m) in the remainder of the month. This figure would be much lower compared to the 0.97 percent (m/m) of inflation that was recorded in the preceding month, but would be the highest monthly February inflation figure since 2013 when Indonesia was also plagued by severe floods.
In January 2017 Indonesia's inflation accelerated to 0.97 percent (m/m) or 3.49 percent (y/y) due to higher food prices as well as higher administered prices (electricity tariffs, fuel prices and vehicle registration fees). In the remainder of 2017, the Indonesian government plans to impose another electricity tariff hike. Responding to this looming hike, Martowardojo said the government needs to safeguard stable food prices when raising electricity tariffs. If not, it can lead to considerable inflationary pressures.
Currently, besides administered prices, volatile food prices are a major source of inflation in Indonesia, particularly due to rising prices of chilies and onions. The price of chicken meat, on the other hand, is on the decline. For full-year 2017 Bank Indonesia targets inflation in the range of 3 - 5 percent (y/y).
Inflation in Indonesia:
Source: Statistics Indonesia (BPS)
Inflation in Indonesia and Central Bank (BI) Target 2008-2016:
(annual % change)
(annual % change)
Source: Bank Indonesia