Bank Indonesia: Deflation Not Caused by Weak Consumer Spending

TEMPO.CO, Jakarta - Bank Indonesia Governor Agus Martowardojo said that deflation and low core inflation do not necessarily indicate weak consumer spending. On the contrary, he said, they reflect the government’s success in controlling price. “Core inflation does not represent weak consumer spending,” he said yesterday at the Presidential Palace.

The Central Statistics Agency (BPS) reports that Indonesia’s core inflation was relatively low as of August. Year to date core (January-August) inflation rate was settled at 2.15 percent, standing at 2.98 percent year-on-year. Meanwhile, deflation was reported at 0.07 percent.

Many have said that deflation and low core inflation indicate weak consumer spending. Bank Central Asia (BCA) analyst David E. Sumual, for example, said that low core inflation was not seasonal but caused by stagnant consumption.

A similar remark was made by Bank Tabungan Negara (BTN) analyst Winang Budyono. He said that core inflation in August 2017 was the lowest in that month in the past 14 years.

Bank Indonesia said that weak consumer spending does not entirely correlate with low core inflation. He said that weak consumer spending was caused primarily by the shift in consumption pattern from Q2 to Q3 of 2017.

Low core inflation was caused by adjustments to transportation and food prices, Agus said. He elaborated that air transportation prices consistently declined, whereas food prices were low. Education expenses were the main component of inflation. “It must be noted; it shows that 2017 inflation target of 4 percent can be met,” he said.

ISTMAN M.P.