Contrary to our expectations, Indonesia’s headline inflation showed some relatively steep deflation in August 2022. This was a sort of relief as we had seen five straight months of rapidly rising inflation in Indonesia between March and July 2022.
And so, there now is a small break with the general trend (the general trend being: accelerating Indonesian inflation since the fourth quarter of 2021), which is visible at the right end of the chart below.
However, considering the Indonesian government raised prices of subsidized fuels on 3 September 2022, Indonesia is bound to see some sharp inflationary pressures on the short term. After all, subsidized Pertalite, Pertamax and automotive diesel oil are widely consumed fuels across the Archipelago (as they are very cheap). And with transportation costs becoming more expensive, a wide range of products/services will become more expensive accordingly. On earlier occasions when the Indonesian government raised subsidized fuel prices (like in 2013 or 2014) inflation peaked at an average of around 2 percent month-on-month (m/m) for two straight months. So, if that pattern returns, we are likely to see inflation somewhere between 1.50 and 2.50 percent (m/m) in both September 2022 and October 2022. This could push the annual inflation rate to around 7 percent year-on-year (y/y) by the beginning of November 2022 (from the level of 4.69 percent y/y in August 2022). It means that Indonesians need to brace for high inflation in the coming months.
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