Inflationary Pressure due to Indonesia's Higher Food Prices during Ramadan
Prices of certain food products in Indonesia have risen steeply during the first week of Ramadan, the Islamic fasting month. Higher prices are a sensitive issue at the moment as the country is fighting higher inflation after subsidized fuel prices were increased in June. Therefore, the central bank raised its benchmark interest rate by 50 bps to 6.50 percent last week. If inflation exceeds 2.3 percent in July (month to month) then it might result in another upward revision of the interest rate, thus slowing down Indonesia's economic growth.
As such, it is important that the government makes sure that stockpiles of certain food products are sufficient. However, prices of beef rose from about 55,000 (USD $5.50) to IDR 115,000 per kilogram on Sunday (14/07). Similarly, chicken meat jumped from IDR 27,000 to IDR 42,000, chili from IDR 50,000 to IDR 100,000, and shallots doubled to IDR 55,000 per kilogram. All these products are important components of dishes that are served in the evening when the fasting is broken after sunset (buka puasa) and therefore have an impact on the country's inflation figure. In June, inflation stood at 5.90 percent year on year. However, it is expected that the impact of the higher fuel prices will be felt hardest in July and august.
President Susilo Bambang Yudhoyono said that the price increases of vegetables and meat may continue throughout Ramadan. He directed some angry words to the ministers of Agriculture (Suswono) and Trade (Gita Wirjawan) as well as the head of the Bureau of Logistics (Sutarto Alimoeso) as Yudhoyono felt that their weak performances had provided room for higher prices. Slow government response (such as issuing new permits to import certain products to stabilize domestic food supplies) are brought on by bureaucratic matters.
Historically, the holy fasting month brings about one percentage point of inflation as Indonesians consume more food and other products (such as shoes and clothing or traveling costs for the Idul Fitri holiday after the Ramadan). Moreover, bad weather has caused some poor harvest of domestically produced food products.