For the 4th year in a row Indonesian inflation was under control. Based on data from Indonesia’s Central Statistics Agency (BPS), the nation’s annual headline inflation rate was 3.13 percent in full-year 2018. By Indonesian standards, that is a low inflation figure. The final figure even fell below the central government’s 3.5 percent (y/y) target that was set in the 2018 state budget and it fell below our (revised) prediction of 3.25 percent (y/y). But it did fall conveniently within the central bank’s wide target range of 2.5 – 4.5 percent (y/y).
As we have often noted in our inflation analyses over the past six years, peaks in Indonesian inflation correlate with administered price adjustments. Hence, when there is an absence of such peaks then chances are big that there have not been made any significant adjustments to fuel and electricity prices. And, indeed, throughout 2018 there were stable administered prices of commodities such as fuel and electricity. The government had already announced that it would not raise these prices in a bid to support people’s purchasing power.
However, it should not be considered a coincidence that energy subsidies are not cut in the year prior to legislative and presidential elections (which are scheduled for April 2019). If the government would decide to raise prices of subsidized fuels and electricity, then it would surely undermine the popularity of both the political parties that in the ruling coalition and incumbent President Joko Widodo who is seeking a second term in the upcoming elections (in 2017 there had been a very modest peak in inflation as the government gradually cut electricity subsidies in the first half of the year).
This articles discusses:
• Indonesia's monthly inflation in December 2018
• Indonesia's annual inflation in full-year 2018
• how the 'political year' contributes to low inflation
Read the full article in the December 2018 edition of our monthly research report. You can purchase this report by sending an email to firstname.lastname@example.org or a WhatsApp message to the following number: +62(0)8788.410.6944