Indonesia is still plagued by commodity price uncertainty as it enters the second half of this year, particularly concerning the supply of food commodities. This concern was expressed by Finance Minister Sri Mulyani Indrawati. One of the contributing factors is the El Nino phenomenon combined with the suspension of the Black Sea Grain Initiatives announced by Russia on Monday (17/7/2023) due to the tensions arising from the conflict in Ukraine.
“And this means that in the second half of this year, we will be greatly affected by commodity price uncertainty, almost similar to 2022, plus the El Nino, which becomes something we need to be cautious about in the second half of 2023,” said Sri Mulyani during the event of Fiscal Incentive Handover for Regional Inflation Control Performance in Jakarta on Monday (31/7/2023).
Sri Mulyani stated that this issue would have an impact on Indonesia because Indonesian food supplies are still influenced by products covered in the Black Sea Grain Initiatives, such as wheat and sunflower seeds.
“Those who had rice, bread, noodles, or other foods for breakfast. If your meal contained wheat, then most likely you got it from Ukraine, and last July, Russia terminated the agreement for distribution in the Black Sea, which includes the traffic of wheat, including sunflower,” she explained.
Hence, she ensured that various commodities related to the agreement would experience price hikes similar to those in 2022, including crude palm oil (CPO), which directly impacts cooking oil prices.
“But if sunflower does not come from Ukraine, cooking oil prices will surge high, and that’s why CPO will also be affected. I would like to remind you that during the 2022 cooking oil crisis, it occurred at the beginning of the conflict in Ukraine. This is what I am conveying, that global phenomena will affect and permeate all countries worldwide, including Indonesia, which we need to be cautious about,” emphasized Sri Mulyani.
Given this situation, she assured that the inflation issue at the global level has not yet concluded, although the trend is moving towards normalization. With the global purchasing power still unrecovered, she affirmed that the global trade trend will not improve.
“So, the inflation problem is not solved. If high inflation occurs, it will lead to complications as it erodes the public’s purchasing power and causes a decline in demand. When demand drops, production activities will also begin to decline,” she stated.
For Indonesia itself, she confirmed that from the perspective of inflation and overall macroeconomic developments, the situation is still very good, demonstrated by controlled inflation figures in June 2023, targeting around 3.5 percent annually, and economic growth still above 5 percent, precisely at 5.03 percent in the first quarter of 2023.
The success of Indonesia in controlling inflation so far, according to her, is attributed to unconventional and orthodox methods, namely controlling inflation from the production, distribution, and logistics sides, rather than focusing on demand-side issues arising from excessive money circulation.