Salary Increase will not Affect Inflation Rate, Analyst Says

TEMPO.CO, Jakarta - Economic observer Lana Soelistianingsih, said that increasing the salary of civil servants, Police and the Indonesian Army personnel will not have a significant effect on the inflation rate. "The effect towards the economy will be present, but will not affect the core of inflation," she said yesterday.

The core of inflation is the depreciation of current exchange rates due to fundamental effects, such as the excessive amount of banknotes circulating in public. Lana said that the salary increase has no effect on the number of banknotes today or even next year. "The situation is under control," she said. Until today, Bank Indonesia (BI) is yet to take steps to filter the amount of circulating banknotes, meaning that BI still considers the situation normal.

However, Lana asserted that the salary increase will affect other economic sectors, such as the increasing prices of commodities that usually follow shortly after salary increase.

Coordinating Minister for Economic Affairs Chairul Tanjung, said that the government plans to increase the salary of government employees by six percent, in accordance with the 2015 State Budget Draft.

The six percent increase, according to Chairul, is based on the inflation rate that is predicted to reach 4.4 percent. "Even if the inflation rate reaches five percent, there will still be a one percent margin from their salary increase," said Chairul.

YOLANDA RYAN ARMINDYA