Indonesia’s Inflation Is the Lowest Compared to Other G20 Countries

Indonesian Traditional Market

Inflation that occurred in Indonesia in July 2022 reached 4.94% on annual basis. This is the highest in 6.5 years. The increase exceeded market expectations. However, Indonesia’s inflation rate is the lowest among the G20 countries.

As previously reported, the Central Statistics Agency (BPS) reported that inflation in July reached 0.64% (month on month/MoM), higher than the 0.61% recorded in June.

On an annual basis (year on year/YoY), inflation in June flew to 4.94%. This record is the highest since October 2015 at which time inflation was recorded at 6.25%.

Based on the BI Price Monitoring Survey in the fourth week of July 2022, last month’s inflation is estimated to reach 0.50% (MtM). BPS explained that inflation in July was triggered by an increase in the price of red chilies, air transportation fares, shallots, household fuel, and cayenne pepper.

Head of the Central Statistics Agency (BPS) Margo Yuwono said that although Indonesia’s inflation reached a record high in more than six years, it was relatively lower than other G-20 countries.
“Indonesia’s inflation is relatively low compared to several other G20 countries,” said Margo Yuwono, in a press conference, Monday (1/8/2022).

Margo added that inflation in Indonesia and the G-20 countries soared after the Russia-Ukraine war soared the prices of food and energy commodities. Italy’s annual inflation in July this year broke 7.9% while Germany’s 7.5% and France’s 6.1%.

The median inflation rate for the G-20 countries in June 2022 was 7.79%, while Indonesia’s inflation for that month reached 4.35%. Inflation trends in the G-20 countries also have quite large differences.

G-20 members from the Asian region tend to record low inflation. On the other hand, a significant jump occurred in the G-20 members in Europe and America.

Saudi Arabia’s inflation in June only reached 2.3% while Japan’s 2.4%, China’s 2.5%, and Indonesia’s 4.35%. High inflation only occurred in South Korea (6%) and India (7.01%).

Moody’s Analytics in its analysis explains that low inflation in developing Asian countries is caused by several factors ranging from the net status of commodity exporters, accommodative interest rate policies, and high-income growth, to the disbursement of financial assistance in the form of subsidies.

Of the six members of the G-20 from Asia, only India recorded high inflation because India is a net importer of several commodities ranging from vegetable oil, gold, and crude oil. Saudi Arabia is a net exporter of crude oil while Indonesia is a net exporter of coal and palm oil.

Meanwhile, low inflation in China and Japan was also supported by their accommodative monetary policy. Unlike developed countries, the central banks of Japan and China have maintained their benchmark interest rates amid the onslaught of rate hikes.

Indonesia’s inflation is still below the median of the G-20 members, mainly due to the government’s policy of maintaining fuel prices and basic electricity tariffs for the lower middle class.

“The global food and energy crisis will put pressure on domestic inflation throughout 2022, but energy inflation due to the global crisis can be mitigated through the government’s subsidy policy,” said Margo.

It is known that Indonesia and Malaysia are some of the Asian countries that provide large amounts of subsidy assistance to mitigate the impact of rising food and energy prices