Satria Sambijantoro, Jakarta – Consumer prices may not greatly increase in July despite the Ramadhan and Idul Fitri festivities, as consumers hold back spending amid domestic economic slowdown, policymakers have forecast.
Month-on-month inflation, an indicator of price levels in the economy, might stand in the range of 0.4-0.6 percent in July, Bank Indonesia (BI) Governor Agus Martowardojo told reporters at the State Palace on Wednesday, quoting the central bank's latest survey.
That was lower than the average pattern during the month of Ramadhan and Idul Fitri, when Indonesians normally boost spending for the festivities and the long holiday. During Idul Fitri in July last year, month-on-month inflation accelerated to 0.93 percent, driven mostly by the increase in food prices.
Finance Minister Bambang Brodjonegoro predicted last week that the inflation rate in July could be the lowest figure during Ramadhan in the last five years.
"There has certainly been a decline in purchasing power," Coordinating Economic Minister Sofyan Djalil said Wednesday, when asked about the lower-than-expected inflation rates.
The minister, however, insisted that the decline in consumption and purchasing power might not prove serious, pointing out that large numbers had performed the mudik (homecoming) tradition, according to the Transportation Ministry.
Ministry data show that at least 5.7 million Indonesians returned to their hometowns, based on data calculated three days prior to Idul Fitri. The number, however, declined compared with the 6 million recorded in the same period last year.
Policymakers normally seek to anchor inflation and keep price levels manageable to safeguard their citizens' purchasing power. However, an inflation figure that is too low also warrants caution, as it may signal declining purchasing power and weaker consumer confidence, a scenario now afflicting Japan and several European countries.
A household survey released by BI earlier this month showed that the Consumer Confidence Index (IKK) fell to 111.3 in June from 112.8 a month earlier.
As recent developments point to sluggish economic activity, analysts say that the economic downturn in Indonesia may continue, the economy having slowed to 4.7 percent in the first quarter, a level unseen since 2009.
Rangga Cipta, an economist from Samuel Sekuritas, said Wednesday that Indonesia's ongoing economic slowdown might depress purchasing power and, ultimately, push down core inflation.
He explained that the declining purchasing power and flat consumption were reflected in the downward trajectory of national income growth, with the economy affected by the weak rupiah and low commodity prices.
In the second quarter, Indonesia's economic growth could decelerate further to 4.3 percent, according to a research team at Nomura Holdings, citing underperformance in several key economic indicators including cement and automotive sales.
"The slowdown cannot be ascribed solely to global woes. Indonesia's very own, once-mighty consumers continue to pull back, judging from lackluster vehicle sales and retail survey results," noted OCBC Bank economist Wellian Wiranto.
Source: http://www.thejakartapost.com/news/2015/07/23/inflation-skips-pattern-weak-consumption.html