Retail in Asia


Inflation in Indonesia has reached highest level in seven years

A 4.94 percent inflation rate was recorded in July, the highest rate in seven years. Not only are commodities in short supply, but imported materials are expensive. Last month’s inflation rate was the highest since October 2015, when the previous record was 6.25 percent.

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According to Mr Margo Yuwono, Head of the Indonesian Statistics Agency, food and energy prices are soaring worldwide, as are crop failures. “Global commodity prices, as well as some situations that occurred domestically such as rainfall and several government policies related to energy policy, have affected our inflation in July 2022,” Mr Yuwono told the public on August 1 when he announced the latest inflation rate.

Due to crop failures amid recent heavy rainfall, price increases in chillies and shallots have been major contributors to rising inflation, he noted. Mr Yuwono also said higher airfares and household fuel costs contributed to higher inflation. People have been feeling the pinch on the ground. As a result, many food vendors are forced to raise their prices. The price of chillies and shallots, both key ingredients of the sauce, have also led some to use less sambal.

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In January, Indonesia observed a 2.18 percent inflation rate. However, by April the rate had climbed to 3.47 percent. In the following months, inflation continued to rise to 3.55 percent in May and 4.35 percent in June. Inflation rates in June and July were above the central bank’s target of 2 to 4 percent.

The rising rate of inflation is not expected to slow down in the future. According to Mohammad Faisal, CEO of CORE Indonesia, the higher inflation rate is a result of the global low supply of commodities amid high demand. Moreover, supply chains of various commodities have been disrupted. There were also disruptions in domestic production due to seasonal crop failures in chillies and shallots.

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According to Mr. Faisal of CORE Indonesia, supply problems are more significant than high demand and imported inflation illustrates this point in particular. Higher import prices result in higher domestic production costs due to imported inflation. As a result, domestically produced goods become more expensive. In addition, depreciating exchange rates are a trigger for imported inflation.