JAKARTA, KOMPAS – Monthly Inflation in rural areas has exceeded the national level in July, mainly due to an increase in food prices. In fact, 15.81 million of the country’s 25.95 million poor people live in villages.
Food still contributed greatly to monthly inflation in July 2018. Villages, as food production centers, suffered high inflation due to rising food prices.
The government needs to pay attention to the rural inflation trend, as greater food inflation can cause poverty.
According the Central Statistics Agency (BPS) data released on Wednesday, inflation increased 0.28 percent in July, mainly due to an increase in food prices and education costs. Food inflation rose 0.86 percent, while education, recreation and sports rose 0.83 percent.
The rise in food inflation was caused by several factors, including an increase in the prices of eggs, chicken, chilies and beans. The inflation hike in education, recreation and sports was due to an increase in school fees. Sixty-eight of the 82 cities used in calculating the consumer price index (CPI) experienced inflation.
Rural inflation rose 0.82 percent in June. The highest inflation of 1.40 percent occurred in food, triggered by a price increase for eggs, chicken and chilies.
Center of Reform on Economics (CORE) economist Akhmad Akbar Susamto said that even though the percentage of people living below the poverty line fell, the number of poor and near-poor people in remained high in March, at a combined total of 64 million people. The people in these two categories were highly vulnerable to falling back to below the poverty line, especially if there is a surge in inflation.
Although annual inflation could be reduced to below 4 percent, food inflation greatly affected the people in the lower income brackets.
"Food inflation increased significantly during the first half of this year at 3.66 percent. This figure is higher than the same period last year, which saw deflation of 0.19 percent," said Akhmad.
The increase in the incomes of rural farmers was minimal. The farmers exchange value (NTP) only grew 1.82 points from 100.31 in the first half of 2017 to 102.14 in the first half of 2018. The real wage of agricultural laborers increased only 0.93 percent.
"The strategy to reduce the number of poor people by maintaining inflation and providing social assistance is not enough. Empowering the poor by creating jobs, especially in the formal sector, is essential. The formal sector can better ensure certainty of income and social welfare," he said.
BPS chief Suhariyanto said on Wednesday in Jakarta that inflation was one cause of poverty. In March, food inflation contributed 73.48 percent to the poverty line.
"Therefore, food inflation should be controlled so the poverty rate does not increase," said Suhariyanto.
Indonesia’s poor population in March was 25.95 million, of which 15.81 million people live in rural areas. The Gini ratio in rural areas increased from 0.32 in September 2017 to 0.324 in March 2018.
According to the BPS data, rice contributes greatly to the poverty line, contributing 20.95 percent to the poverty line in cities and 26.70 percent in villages.
Multiple impacts
The relatively low inflation has not resulted in increased productivity and purchasing power. Under this condition, economic growth will stagnate, which could trigger multiple impacts in turn.
Enny Sri Hartati, the executive director of the Institute for Development of Economics and Finance (Indef), said the low inflation and decreased purchasing power was an anomaly.
Household consumption instead fell from 4.97 percent in the fourth quarter of 2017 to 4.95 percent in the first quarter of 2018.
"Efforts to control prices should not stop at maintaining low inflation. Increased productivity and purchasing power should follow price stability," Enny said in Jakarta on Wednesday.
This year, Bank Indonesia is targeting inflation of 2.5 to 4.5 percent. The 2018 State Budget assumes 3.5 percent inflation.
Separately, Finance Minister Sri Mulyani Indrawati said it was not easy to maintain economic growth of above 5 percent amid a global situation marred by many uncertainties. (HEN/KRN)
