February 4, 2025
JAKARTA – Indonesia has recorded a multi-decade low inflation rate this January with experts saying the figure recorded this month is rather unusual and could be cause for concern.
Interim Statistics Indonesia (BPS) head Amalia Adininggar Widyasanti announced at a press conference on Monday that consumer price index (CPI) growth slipped to 0.76 percent year-on-year (yoy) in January.
“The annual inflation in January 2025 is the lowest since January 2000,” said Amalia.
The CPI figure was far lower than this year’s targets of 1.5 to 3.5 percent set by both the government and Bank Indonesia.
The inflation rate was still around 1.57 percent yoy in December last year after declining each month from 2.57 percent at the beginning of that year.
This January’s monthly inflation reading marks a decline of 0.76 percent month-to-month (mtm), attributable primarily to much lower electricity prices compared to a month prior.
The price index for commodities under the categories of housing, water, electricity and household fuels saw a decline by 8.75 percent yoy with electricity as the dominant factor that pushed the group’s index.
In December last year, the government announced a 50 percent electricity discount for households using 1,300 volt-ampere (VA) power or below for January and February, as it sought to cushion a value added tax (VAT) hike across the board from 11 percent to 12 percent as soon as the year turned.
President Prabowo Subianto, however, made a U-turn just hours before the hike was implemented, deciding it would apply only to luxury goods and services. Despite the reversal, the government decided to keep the temporary electricity discount in effect.
The Finance Ministry’s Fiscal Policy Agency (BKF) head Febrio Kacaribu defended the electricity discount, saying in a statement on Monday that the measure was taken “to maintain people’s spending power and push economic activity”.
The agency pointed out that core inflation, which strips out government-controlled prices and volatile food prices, still edged up to 2.36 percent yoy. The BKF noted “it reflects demands are still growing”.
Taking the impact of the electricity discount out of the equation, January’s headline inflation would lie around 2.2 percent, according to a calculation conducted by Bank of America economists Kai Wei Ang and Rahul Bajoria in their analysis published on Monday.
They predicted that inflation would eventually rebound in March as the discount ended. Ang and Bajoria forecast CPI growth would remain stagnant at 0.7 percent next month, as the discount still continues until February.
“Accordingly, we have revised down our average headline inflation forecast to 2.1 percent [from 2.3 percent previously], but have raised our end-2025 forecast slightly to 2.7 percent [from 2.5 percent previously],” said the analysis.
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Private lender Bank Permata chief economist Josua Pardede wrote in an analysis on Monday that having a monthly deflation in January is uncommon, as “seasonal trends typically see the volatile price index dominantly exerting upward pressure”.
He added that, in line with seasonal factors, the volatile food inflation still shot up to 3.07 percent annually from close to zero percent in December 2024.
Meanwhile, government-controlled prices saw a drop of 6.4 percent yoy, largely due to the electricity discounts in January.
Josua projects that Indonesia would see an inflation rate of 2.33 percent at the end of this year.
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Center of Economics and Law Studies (CELIOS) executive director Bhima Yudhistira told The Jakarta Post on Monday that the low headline inflation reflected diminishing spending power, which remained subdued despite the electricity discount.
“The logic is, when electricity gets discounted, people spend the money on something else,” said Bhima, pointing out the drop in electricity bills for some households was not counterbalanced by more spending on other fronts, resulting in an even lower inflation rate.
Bhima explained that the extra money people saved from discounted electricity went into savings instead of consumption, which Bhima surmised was to brace for Ramadan and Idul Fitri in March.
He went on to say that the government should focus on creating more jobs, control imports that disrupt domestic industry and roll out more incentives to get consumption back on its feet.
Domestic consumption is Indonesia’s largest growth motor as it regularly contributes over 50 percent of the country’s gross domestic product (GDP) growth, which has recently been losing steam.
The government will announce 2024’s fourth quarter GDP growth details on Feb. 5.