Sri Mulyani Is Right, Triple Horror Is Getting More Visible!

Jakarta, CNBC Indonesia- Finance Minister Sri Mulyani said there were triple challenges The things that will haunt the world economy this year are a surge in inflation, high interest rates, and weak economic growth. Of the three, the horror of inflation has become increasingly visible.

At least Indonesia can still breathe a sigh of relief because the horror of high interest rates and weak economic growth has yet to happen. Bank Indonesia (BI) decided to keep BI 7-Day Reverse Repo Rate (BI7DRR) this month.

This means that MH Thamrin has held the benchmark interest rate at 3.5% for the last 15 months. The benchmark interest rate of 3.5% is still the lowest in the history of independent Indonesia.

Meanwhile, the Indonesian economy still grew 5.01% (year on year/yoy) in Q1-2022. Indonesia’s economic growth is also estimated to remain high in the second quarter of 2022 due to the factors of Fasting and Eid.

However, Indonesia is no longer able to avoid the ‘ghost’ of inflation. Soaring food and energy commodity prices, economic recovery, and loosening of mobility have kept inflation soaring.

According to the Central Statistics Agency (BPS), inflation in April reached 0.95% (month to month/mtm) or the highest since January 2017. On an annual basis (yoy), inflation jumped 3.47% in April. The level is the highest since August 2019.

Inflation is believed to continue to soar in May as a result of Eid al-Fitr and the easing of mobility. For the record, the consumption of Indonesian people traditionally will reach its peak before Lebaran. This condition will make inflation soar.

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Based on the Price Monitoring Survey in the third week of May 2022, inflation is expected to jump to the level of 3.53% (yoy). If BI’s projections are correct, the annual inflation in May will be the highest since December 2017 or more than four years.

The Danareksa Research Institute’s May inflation projection is even higher. Danareksa estimates May inflation will reach 3.74% in May. A number of commodities that are believed to raise inflation in May are chicken meat, father’s eggs, beef, household fuel, and spices.

BI Governor Perry Warjiyo also estimates that overall inflation this year will be above 4%. This means that the inflation rate will be above BI’s target of 2-4%.

For the record, the last time Indonesia recorded inflation above 4% was in 2014. At that time inflation soared by 8.36% as a result of rising fuel prices and a spike in food prices due to bad weather.

Bank Mandiri economist Faisal Rachman said the government’s decision not to increase the price of fuel, LPG and basic electricity tariffs would at least curb inflation a little.

Bank Mandiri initially estimated inflation at 3.3% this year. In April, they revised upward their inflation projection to 4.06% as prices for food and energy commodities surged due to the Russo-Ukrainian war.

“Inflation will be lower. Our temporary count is at 3.5-3.8%,” Faisal told CNBC Indonesia.

Bank Danamon economist Wisnu Wardana said that compared to other countries, Indonesia was more fortunate in dealing with surging commodity prices. As a commodity producer, Indonesia can use excess revenues from the commodity sector to keep inflation at bay.

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Thursday (19/5/2022), the DPR and the government agreed to increase the allocation of energy subsidies by Rp. 74.9 trillion and to the allocation of compensation payments for fuel and electricity by Rp. 275 trillion. The fuel compensation fund was agreed at Rp 234 trillion while the electricity amounted to Rp 41 trillion. The DPR and the government also agreed to increase the social protection budget by Rp. 18.6 trillion.

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