BI Projects 2022 Inflation to Reach 6.5%

Source: Dimas Ardian/Bloomberg

Bank Indonesia (BI) has just submitted its projection of 2022 inflation expectations. According to BI, the rate of inflation expectations this year could reach 6.5% (year on year/YoY). The increase in the fuel oil (BBM) price is one of the causes of soaring inflation.

BI Deputy Governor Aida S Budiman explained that inflation expectations with the increase in fuel prices will push up transportation fares, which is one of the indicators in the domestic inflation basket.

“This causes inflation expectations to increase by 6.5% by the end of the year, much higher than the inflation target of the government and BI’s decision of 3% plus minus 1%,” explained Aida in a Public Discussion entitled ‘Strengthening Synergy to Maintain Economic Stability, Wednesday (28/28/2020). 9/2022).

Meanwhile, from data compiled by BI, the inflation component of volatile food or volatile food prices comes from the horticulture sector. However, Aida did not specify how much the inflation contribution from the horticultural products contributed to national inflation, which is clearly the increase in inflation in this sector due to weather factors.

In addition to weather, the fundamental factor that affects food commodity prices is the production side of goods between time and region.

Aida gave an example, red chili, and cayenne pepper in various areas of supply each month is not evenly distributed, so there are differences in production gaps that are not evenly distributed.

“Sometimes these lows and highs occur this year. Before August, chili production experienced a very high decline, so the price increased,” explained Aida.

BI is committed to maintaining an inflation control strategy, not just maintaining supply and demand or core inflation. The most important thing, said Aida, is controlling volatile food prices.

“We are grateful that we have a central inflation control team and a regional inflation control team spread across 542 regencies, cities, and provinces,” explained Aida.

Previously, BI Governor Perry Warjiyo explained that an increase in fuel prices would increase inflation by 1.8% to 1.9%. Thus, the Consumer Price Index (CPI) inflation at the end of 2022 will be more than 6% year on year (YoY).

With this condition, Perry estimates that inflation in September 2022 could reach 5.89% YoY. Meanwhile, in October, November, and December, it is estimated that the increase in inflation will not be too large and will continue to slope or only from the impact of propagation.