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Inflation remains low despite Ramadan, Idul Fitri driving demand for food, transportation

Jakarta Post - June 2, 2021

Dzulfiqar Fathur Rahman, Jakarta – Indonesia's inflation rate picked up in May both on an annual and monthly basis as prices of food commodities and transportation services rose during the country's peak spending period of Ramadan and Idul Fitri.

Consumer prices rose 0.32 percent in the month of May, lifting annual inflation to 1.68 percent, Statistics Indonesia (BPS) reported on Wednesday. While the monthly increase was higher than in May 2020, headline inflation remained unusually low, when compared for instance with the 2.19 percent seen a year earlier.

"Ramadan and Idul Fitri gave May a seasonally dominant [effect on inflation this year]," Setianto, BPS undersecretary for services and distribution statistics, said at an online briefing on Wednesday.

"If we look at the main commodities contributing to inflation, food items were [prominent] among them, which people needed to meet their daily needs related to fasting and Idul Fitri, and fares for passenger transportation increased."

With people receiving religious holiday bonuses and spending more than usual because of Ramadan and Idul Fitri, May marked the highest level for both monthly and annual inflation so far this year. Nevertheless, the figures remain lower than pre-pandemic levels.

The food, beverages and tobacco expenditure group contributed 0.10 percentage points to monthly inflation, driven by higher prices of chicken, fresh fish, oranges, cooking oil and beef. Some food items saw price decreases, such as red chili and bird's eye chili.

The transportation expenditure group, the second-largest contributor to monthly inflation, showed the highest increase at 0.71 percent month-to-month (mtm) in May, driven largely by a surge in airfares, followed by intercity transportation fares, parking fees and train fares.

Core inflation in May stood at 1.37 percent on an annual basis, while goods and services with government-administered prices rose 0.93 percent and those with volatile prices rose 3.66 percent. While some types of fish belong to the volatile prices category, skipjack and yellowtail fish contributed to core inflation.

Faisal Rachman, an economist at publicly listed state-owned Bank Mandiri, said the monthly inflation figure matched the bank's forecast and was higher than the market consensus of 0.29 percent. Core inflation had picked up on the back of not only seasonally high demand but also better consumption patterns and increased gold prices.

The bank maintains its full-year inflation forecast of 2.92 percent, which would fall squarely into Bank Indonesia's (BI) target range of between 2 and 4 percent.

"We see Indonesia's economic recovery tending to accelerate going forward as the velocity of money has started to pick up, along with improving consumption patterns," Faisal said in an analysis published on Wednesday, pointing out that the consumer confidence level had moved back into optimistic territory in April."This in consequence will strengthen demand and spur money velocity, suggesting a demand-pull inflation potential."

BI reported a consumer confidence index reading of 101.48 last month, marking a return to a level above the 100-point threshold separating the optimistic territory from the pessimistic. However, the confidence level among consumers with an income between Rp 3.1 million (US$217) and Rp 4 million remained below the threshold.

Source: https://www.thejakartapost.com/news/2021/06/02/inflation-remains-low-despite-ramadan-idul-fitri-driving-demand-for-food-transportation.htm