RESEARCHER at the Center of Reform on Economics (Core) Eliza Mardian assesses that the government was too late in anticipating the weakening economy. He revealed that the yellow light of weakening purchasing power has been felt since the end of 2023.
Based on data from the Central Statistics Agency (BPS), inflation achievement throughout 2023 was 2.61% on an annual basis or year on year (yoy), a decrease compared to the realization in 2022 which reached 5.51% yoy. General inflation year to date (ytd) from January to September 2023 was recorded at 1.63%. General inflation achievement continues to decline to the level of 0.74% ytd from January to September 2024.
“Actually, this yellow light of weakening purchasing power has been felt since the end of 2023. The government was late in anticipating the economic slowdown. Currently the condition has been hit,” he told Media Indonesia, Wednesday (2/10).
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Eliza is of the opinion that the consecutive deflation experienced by Indonesia for five consecutive months from May-September 2024 was mostly caused by the decline in volatile food prices. This downward trend is in line with the decline in prices at the wholesaler level. The Agricultural Wholesale Price Index (IHPB) in September 2024 reached 2.14% yoy, continuing to decline since reaching its peak at Eid al-Fitr in April 2024 when it touched 9.10% yoy.
“So, the main cause of deflation is the very high increase in food prices at the end of 2023 to the beginning of 2024,” explained Eliza.
Apart from that, he emphasized that almost 56% of middle and lower middle class consumption is used for shopping for food, when food prices rise, of course people’s purchasing power will be increasingly eroded. This is due to disproportionate wage increases.
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“In the end, people’s purchasing power continues to weaken until now and is made worse by the number of layoffs (PHK) which causes people’s purchasing power to become increasingly depressed,” he said.
Contacted separately, senior analyst at the Indonesia Strategic and Economic Action Institution, Ronny P Sasmita, said that what needs to be watched out for in successive deflation is its impact on economic growth.
which is expected to be corrected at the end of the year. In other words, the economic growth target of 5.2% could fail to be achieved.
“There is a potential for our economic growth not to reach the target, perhaps in the range of 4.9%. This influence is because the contribution of household consumption to gross domestic product (GDP) is very large, more than 50%,” he added.
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So, continued Ronny, in order for Indonesia’s economic growth to reach the 5% level, the government must improve it from other sides, especially in terms of increasing government spending, both for productive spending and social welfare spending.
The government is also asked to ensure that people’s purchasing power does not become increasingly depressed, so that consumption levels do not fall drastically on a sustainable basis in the coming months. This effort can be done through social assistance such as subsidized basic commodities for the lower class, direct cash assistance, and the like. Another effort the government must make is to accelerate investment, so that job opportunities become wider.
“Logically, the more people work, the more people will earn income, and the more people will spend on consumption and the like,” he concluded. (Ins/M-4)
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