Adrian Wail Akhlas, Jakarta – Headline inflation in Indonesia rose to 2.98 percent in February from 2.68 percent in January, driven by higher prices of garlic and cayenne, among other commodities.
"The highest inflation was recorded in the food, beverages and tobacco [category], especially garlic, cayenne and meat," Statistics Indonesia (BPS) head of statistics distribution and services Yunita Rusanti told a news conference in Jakarta on Monday.
"There is a shortage of garlic. It could be due to the coronavirus, as we import the majority of our garlic from China, but what is clear is that the price increase is due to a lack of supply."
Volatile food inflation was recorded at 6.68 percent in February year-on-year (yoy), while core inflation was steady at 2.76 percent. Government-administered prices only saw 0.54 percent yoy increase.
Food Resilience Agency (BKP) head Agung Hendriadi said garlic stocks had already fallen to 80,000 tons as of Thursday. With monthly garlic consumption of some 46,000 tons, current stocks would only suffice until April.
The Business Competition Supervisory Commission (KPPU) has rejected claims that the coronavirus disease 2019 (COVID-19) diminished garlic imports from China. KPPU commissioner Guntur Saragih blamed slow import realization for the scarcity, which he said had already happened before the virus broke out.
Monthly inflation in February was 0.28 percent, with core inflation at 0.14 percent and volatile food inflation at 1.27 percent. By contrast, government-administered prices fell over the month, dropping 0.11 percent.
"The deflation [in government-administered prices], was recorded in the transportation sector thanks to lower gasoline prices for Pertamax and Pertamax Turbo," said Yunita, adding that lower airfares had also dragged down prices.
Bank Mandiri chief economist Andry Asmoro highlighted that annual core inflation at 2.76 percent in February was lower than the 2.88 percent rate seen in January. "This indicates weakening purchasing power," he added.
"Stable inflation may support BI's [Bank Indonesia] agenda to maintain an accommodative monetary policy in 2020," Andry wrote. "We see there is still, albeit limited, room for BI to conduct another policy rate cut by 25 basis points to 4.5 percent before the second half."
Andry explained that the limited room would be caused by the adverse effect of COVID-19 on the trade balance and capital flows.
BI has an inflation target of between 2 percent and 4 percent for this year and an economic growth forecast of 5 percent to 5.4 percent. Indonesia's gross domestic product (GDP) grew 5.02 percent in 2019, the slowest in four years.
Indonesia recorded inflation of 2.72 percent in 2019, the lowest full-year rate in about two decades as purchasing power was under pressure from a global and domestic economic slowdown.
Efforts by the central bank and government to keep consumer prices under control also reined in inflation, according to Bank Indonesia (BI) Deputy Governor Destry Damayanti.
BI has an inflation target of between 2 percent and 4 percent for this year.
"We have conducted many assessments on whether the low inflation rate is structurally caused by the fact that we're entering a low inflation era or is temporary in nature because the demand side is weak. The conclusion is that it's a combination of the two," Destry told attendants of the 2020 CNBC Indonesia Economic Outlook in Jakarta on Wednesday.
"On the one hand, our demand side is low. Household spending [growth] reached the lowest [rate] yet in 2019, below 5 percent, at 4.97 percent."
According to BPS data, household spending, which accounts for more than half of Indonesia's economy, grew at 4.97 percent in the fourth quarter of 2019.
"But there are other factors that make us confident that we can keep inflation at low levels going forward," Destry said.
She added that there were three reasons underlying BI's confidence over Indonesia's economic outlook: the effectiveness of the inflation monitoring team, a more transparent economic system and the influence of a digital economy.
BPS applies a new formula for calculating its consumer price index (CPI), using 2018 as the base year of the CPI instead of 2012, as well as a new consumption pattern since January.