Inflation Data Shows Improvement in Demand

KOMPAS/TOTOK WIJAYANTO

Broiler chicken egg traders await buyers at Pasar PSPT Tebet, Jakarta, Tuesday (12/1/2020). The Central Statistics Agency (BPS) recorded inflation in November of 0.28 percent. Inflation is influenced by the prices of several commodities, such as vegetables and fish, which are still high in several regions. Chicken eggs together with red chilies and chicken meat are a contributor to inflation in the foodstuff sector.

JAKARTA, KOMPAS - The increase in the inflation rate over the last two months, after three consecutive months of deflation, is believed to reflect a gradual improvement in demand. However, overall inflation remains low, which indicates weak domestic demand. Consumer confidence may weaken as recent increases in COVID-19 cases have caused further uncertainty.

According to Statistics Indonesia (BPS) data on Tuesday (1/12/2020), the monthly inflation in November was 0.28 percent, higher than the 0.07 percent October inflation rate. Three months earlier, Indonesia booked deflation of 0.1 percent in July and of 0.05 percent in August and September.

Also read: Pushing Back Inflation

Bank Danamon Indonesia economist Wisnu Wardhana said the increase in the inflation rate reflected a gradual improvement in demand following the relaxation of large-scale social restrictions (PSBB).

Inflation is expected to continue to increase until December in line with growing economic activities. However, it is also possible that inflation will remain low because of weak demand and a fall in the consumer confidence following the recent surge of COVID-19 cases.

Also read: Extra Paradox in the Middle of a Recession

Institute for Development of Economics and Finance (Indef) executive director Tauhid Ahmad said the increase in the monthly inflation in November could be seen as an early sign of economic recovery.

"It cannot be said that people\'s purchasing power has improved. Maybe there is a contribution from the disbursement of social assistance provided by the government, but the impact is still quite small,” Tauhid added.

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Minister of Finance Sri Mulyani Indrawati

Finance Minister Sri Mulyani Indrawati said purchasing power was very weak during the COVID-19 pandemic, which would cause inflation this year to fall to its lowest level in at least six years. The government is worried about the continued decline in people’s purchasing power. "Inflation is estimated to be about 1.5 percent at the end of the year," she said during a virtual press conference on Tuesday.

The low inflation trend has not only been experienced by Indonesia but also by many other countries in the world. The COVID-19 pandemic has caused a decline in demand as economic activities have been disrupted by the health crisis. The weak demand was reflected in the deflationary trend from July to September.

Also read: Deflation Amid Threat of Recession

According to Sri Mulyani, demand will recover quickly if COVID-19 can be effectively controlled. The discovery of a vaccine and widespread vaccination would be keys to restoring the confidence of the middle class, encouraging them to increase their spending and consumption.

Inflation is estimated to be about 1.5 percent at the end of the year.

Expenditures

In his remarks during a plenary Cabinet meeting at the State Palace in Jakarta on Tuesday, President Joko “Jokowi” Widodo asked ministers and heads of government institutions to begin the disbursement of the 2021 state budget in January in order to accelerate the recovery of the economy.

For this reason, the President emphasized that auctions of projects for 2021 should begin in December to speed up state spending. The 2021 budget allocation list (DIPA) and the 2021 list of regional transfers and village funds (TKDD), the bases for the auction, were distributed to ministries, state institutions and local governments at the State Palace on Nov. 25.

Typically, a very small portion of the state budget is spent in first quarter of the year. The disbursement of the state budget generally begins in earnest in the second quarter and reaches its peak in the fourth quarter. This disbursement pattern has caused, among other things, uneven economic growth, which is not optimal for development.

PAPARAN BADAN PUSAT STATISTIK

The Central Statistics Agency\'s explanation regarding the increase in the consumption price index rate or inflation in October 2020

Government expenditure in the 2021 state budget is set to be Rp 2.75 quadrillion, a 0.4 percent increase from the figure in the 2020 state budget. About Rp 1.03 quadrillion of the total has been allocated to 87 ministries and state institutions, and Rp 795.5 trillion has been allocated for TKDD funds.

About Rp 169 trillion has been allocated for the health sector, Rp 550 trillion for education, Rp.417.4 trillion for infrastructure, Rp 408.8 trillion for social protection, Rp 99 trillion for food security and Rp 26 trillion for information and communication technology.

Also read: Absorbing the Cost of Recession

During the handover of DIPA and TKDD fund allocations to ministries, state institutions and local governments, Sri Mulyani said state finances were the main means of financing measure to mitigate the health and economic crisis through social protection and economic recovery programs. However, the programs’ effectiveness depends largely on the accuracy recipient targeting, timing and the disbursement rate.

The government expects the economy to grow by 5 percent in 2021. Even though the domestic economy is forecast to improve, the government still needs to remain vigilant because the risk of uncertainty remains high. (JUD/AGE/KRN/LAS)