Institute for Economic and Social Research – Faculty of Economics and Business – Universitas Indonesia

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Rice Prices Surge, Inflation Rises! Macro Analysis Series, BI Board of Governor Meeting, November 2023.

Thursday November 23rd, 2023

Disruption in rice production due to the El Nino phenomenon resulted in an increase in inflation in October 2023, albeit not significantly, with the overall inflation recorded at 2.56% (y.o.y), within the BI’s target range. The trade balance in October showed an increased surplus of USD 3.48 billion, supported by a moderate decline in both exports and imports compared to the previous month. Furthermore, the Rupiah strengthened against the US dollar after BI decided to raise interest rates at the October 2023 meeting, while the Fed opted to maintain its interest rate levels. The Fed is likely to uphold its policy interest rates during the December 2023 FOMC meeting. Even with ongoing pressures on the Rupiah due to global market uncertainties, the convergence of these four factors guides BI in maintaining the interest rate at 6.00% for this month.

October Inflation Trends and Contributors

Still within the central bank’s target range and in line with market expectations, October’s overall inflation was recorded at 2.56% (y.o.y), a slight increase compared to September 2023, which stood at 2.28% (y.o.y). General inflation has remained within the BI’s target range for seven consecutive months since May 2023, when it hit the upper limit of the target range. As in the previous month, the primary contributor to October’s inflation was the rise in food prices, indicated by a yearly inflation rate of 5.41% (y.o.y) in the food, beverage, and tobacco expenditure group, contributing 1.39% to October’s inflation.

“Factors Behind October’s Inflation Trends”

On a monthly basis, October’s inflation generally decelerated to 0.17% (m.t.m) from 0.19% (m.t.m) the previous month, driven by increases in rice prices and non-subsidized fuel. In early October 2023, Pertamina raised the prices of non-subsidized fuel types such as Pertamax, Pertamax Green, Pertamax Turbo, Dexlite, and Pertamina Dex. The fuel price hike’s impact was limited because Pertamina raised prices for less commonly used non-subsidized fuel types, averaging only 5.55%. Unlike September last year, when the Indonesian Government increased prices not only for Pertamax but also for subsidized fuels like Pertalite and Solar, with an average price increase of 26.25%.

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Read the Macro Analysis Series, BI Board of Governor Meeting, October 2023 edition here.

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