by Ulisari Eslita
Indonesia recorded its first deflation since September 2019 due to weak purchasing power. Last month, country’s consumer price index (CPI) stood at -0.10% month-on-month. The deflation was mainly caused by volatile food prices, such as shallots, chicken, garlic, rice and chili.
Annually, the CPI was up by 1.54% in July; it was below the central bank's target range of between 2%-4% for the year. Core inflation, which excludes fluctuation of raw foods and government’s administered price such as electricity and fuel, fell to 2.07% in July from 2.23% a month earlier.
“The core inflation was still weak despite a slight increase in July, which suggests that we still have to work hard to boost people’s purchasing power,” said BPS head Suhariyanto on Monday.
Meanwhile, CPI for transportation and information, communications and financial services dropped the most in July, deflating by 0.71% and 0.31%, respectively. Personal care and other services, health, and education rose the most by 6.05%, 4.2% and 2.66%, respectively.
According to Bahana Sekuritas recent research, full-year inflation of 2020 may go below 1.8%, paving the way for a further 50-bps cut in the benchmark of Bank Indonesia rate to 3.5%.
“This assumes monthly inflation at around 0.15% for the rest of 2020, with price levels remaining depressed until year-end festivities,” said Raden Rami Ramdana, an analyst at Bahana Sekuritas.
The government has earmarked almost Rp 700 trillion of stimulus to strengthen the country’s health care response and boost the economy amid the ongoing health crisis. However, the government expects the country’s gross domestic product (GDP) to have contracted by 3.8% in the second quarter and possibly shrinking further in the third, which would mark Indonesia’s first recession since the 1998 financial crisis.