November 2, 2023
JAKARTA – Rice once again contributed more than any other commodity to inflation in October, Statistics Indonesia (BPS) revealed on Wednesday.
BPS official Pudji Ismartini said the staple food accounted for 0.58 percentage points of the annual consumer price index (CPI) growth of 2.56 percent recorded last month, a figure that marks an increase from the prior month’s unexpectedly low rate of 2.28 percent.
“The commodity rice makes up a very big portion of the CPI calculation, hence the impact on inflation when there’s a rice price increase,” said Pudji on Wednesday.
BPS data shows that retail prices for rice surged 19.12 percent year-on-year (yoy). The increase was even higher for unhusked rice, at 27.95 percent.
Even though inflation of 2.56 percent is well within Bank Indonesia’s target range of 2 to 4 percent, the central bank unexpectedly increased its benchmark interest rates by 25 basis points to 6 percent last month in what it described as a preemptive measure.
Higher interest rates generally weaken consumer demand in an economy and bring down prices as a result.
However, Pudji noted that higher interest rates would have only a limited effect on rice prices, given that the absence of widely accepted substitutes in Indonesia made rice an inelastic commodity, one where price changes have relatively little effect on demand.
“The rising rice price will not necessarily cause decreasing consumption of the commodity or make people switch to other commodities instead,” Pudji said. “So theoretically, [the effect of] a rate increase and its correlation with lowering rice prices is indirect.”
BPS said last month that annual inflation for rice had reached its highest level and that it had been caused not solely by domestic conditions, given that rice production in the global market had been disrupted.
Production in leading rice exporters like India, Thailand and Vietnam declined this year as a result of the El Niño phenomenon and drier weather patterns. Similar challenges were experienced in many rice-producing regions of Indonesia.
Indonesia’s Meteorology, Climatology and Geophysics Agency (BMKG) warned of potential extreme weather in the archipelago on Monday.
A number of global meteorological agencies have forecast that this year’s El Niño will be a strong one, which may push back the timeline for the upcoming rainy season.
That, in turn, could delay the planting and harvest season and reduce domestic stocks.
In a meeting with the House of Representatives on Aug. 30, the ministry forecast that Indonesia could lose around 380,000 tonnes of rice this season if El Niño were moderately intense.
Read also: Jokowi to import another 1.5 million tonnes of rice to brace for El Niño
However, then-agriculture minister Syahrul Yasin Limpo said the archipelago could lose up to 1.2 million tonnes should the weather phenomenon develop into the strong category.
Jakarta has been shoring up rice reserves through imports, and President Joko “Jokowi” Widodo said last month that the government’s rice reserves currently stood at around 1.7 million tonnes.
This was likely insufficient to offset the impacts of El Niño on domestic rice production, so the government needed to import more rice on top of this year’s quota.
Read also: Govt to import another 2 million tonnes of rice in 2024: Bulog
The government directed the State Logistics Agency (Bulog) to import another 2 million tonnes of rice next year to bolster the country’s rice stockpiles.