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Bisnis | Ekonomi - Posted on 03 October 2024 Reading time 5 minutes
DIGIVESTASI - The Consumer Price Index (CPI) experienced another decline or deflation in September 2024, recording the worst deflation in 24 years since 1999. This deflation lasted for five consecutive months, and occurred ahead of the end of President Joko Widodo's (Jokowi) administration on October 20, 2024.
Based on a report by the Central Statistics Agency (BPS) on Tuesday (1/10/2024), deflation in September 2024 was recorded at 0.12% on a monthly basis (month to month/mtm), deeper than the deflation in August 2024 which was only 0.03%. This deflationary trend has started since May 2024 with a decline of 0.03%, then continued in June by 0.08% and July by 0.18%.
However, on an annual basis (year on year/yoy), the CPI recorded an increase or inflation of 1.84%, although this figure is lower than the previous period which reached 2.12% yoy.
Acting. Head of the Central Statistics Agency (BPS), Amalia Adininggar Widyasanti, explained that the consecutive deflation trend experienced by Indonesia in a calendar year is not a new phenomenon. Similar conditions had occurred during the monetary crisis (krismon) or Asian financial crisis in 1998-1999.
For the record, the last time five consecutive months of deflation occurred in 1999, when Indonesia recorded deflation for eight consecutive months. Deflation started in March with -0.18%, followed by April (-0.68%), May (-0.28%), June (-0.34%), July (-1.05%), August (-0.71%), September (-0.91%), and October (-0.09%). This condition occurred amidst economic instability due to the crisis in 1997-1998.
Amalia also highlighted that the largest expenditure sector contributing to deflation this time was food, beverages, and tobacco, which experienced deflation of 0.59% and contributed 0.17% to total deflation. The decline in this group, which was the deepest deflation since 2020, was caused by commodities such as red chili, cayenne pepper, eggs, meat, and tomatoes.
Deflation in the volatile food group has continued since April 2024, marking a downward trend in prices in this sector on a monthly basis. As of September 2024, deflation in this group reached 1.34%, with a contribution to overall deflation of 0.21%.
Some of the most dominant commodities in contributing to deflation in this volatile food group are red chili, cayenne pepper, eggs, chicken meat, tomatoes, leeks, potatoes, and carrots.
According to data from the National Strategic Food Price Information Center (PIHPSN), during September 2024 the price of red chili peppers decreased by 19.3%, while the price of cayenne pepper decreased by 7.65%. Despite slight production disruptions due to the dry season, the Ministry of Agriculture predicts that chili stocks and prices will remain adequate until the end of 2024.
Acting. Director General of Horticulture of the Ministry of Agriculture, Muhammad Taufiq Ratule, in the National Chili Forum in Jakarta (3/9/2024), said that although the national chili production is estimated to be safe until December 2024, the distribution is uneven throughout Indonesia. National chili production is estimated to reach 3 million tons per year, far exceeding domestic consumption which is only around 1.17 million tons. This surplus is expected to maintain the stability of chili prices in the future.
Deflation in the food, beverages and tobacco sector continued from April to September 2024, recording six consecutive months of price declines. Interestingly, this pattern of deflation has also historically been recorded almost every September from 2020 to 2024, except in 2023.
Although the decline in food prices is one of the main factors of deflation, there are other indications that the decline in people's purchasing power is the main cause of sustained deflation over the past five months. According to observations, the Consumer Price Index (CPI) in Indonesia is more influenced by food supply. Inflation usually spikes when there is a supply disruption, but stabilizes when the supply is sufficient. Demand-driven inflation only occurs in certain periods, such as during Ramadan and Lebaran, which is then followed by deflation when demand falls.
However, the situation this year is different. Deflation continues despite the abundant supply of foodstuffs such as rice and eggs. In fact, egg farmers staged protests as egg prices fell due to a significant drop in demand.
Telisa Falianty, a professor at the University of Indonesia, revealed that economic pressures occurred due to the reduction of the middle class and weakening purchasing power. This is reflected in the deflation data as well as the contraction in the manufacturing sector, as seen in the Manufacturing PMI. According to him, this situation threatens Indonesia's economic growth, which is expected to be difficult to reach 5%.
Economist from KB Valbury Sekuritas, Fikri Permana, also stated that the decline in purchasing power did not only occur in basic goods, but also in non-staple goods such as clothing and telecommunications. The decline in purchases of durable goods, such as cars, emphasizes the weakening purchasing power, which is exacerbated by the contraction in the manufacturing sector.
Data from the Mandiri Institute shows that in September 2024, the proportion of shopping in supermarkets has continued to increase since May 2024, reaching 24.2%. This increase illustrates people's focus on prioritizing basic needs, especially food. In contrast, spending on restaurants, households, and fashion tended to decline, signaling a reduction in consumption of secondary and tertiary goods.
In addition, Manufacturing PMI data released by S&P Global on October 1, 2024 showed that Indonesia's manufacturing sector continued to contract for the third consecutive month, with the PMI value in September standing at 49.2. Although the figure is slightly better than August, Indonesia's manufacturing condition is still in a worrying state.
Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, highlighted that consecutive deflation is a sign of weakening public demand. According to him, this is not an achievement in controlling inflation, but an indication that people are holding back spending. In fact, the middle class is having difficulty finding work, while the upper middle class is also holding back spending due to concerns about worsening economic conditions.
Bhima warned that if this deflationary trend continues, the business sector, especially in the food and beverage, textile, footwear, and property industries, will most likely revise their business plans. This weakening signal is also reflected in the Manufacturing PMI which remains below the 50 mark, indicating a decline in raw material purchases. Bhima emphasized that this situation could lead to an economic recession if not addressed immediately.
Ciptadana Sekuritas Asia economist, Renno Prawira, also stated that Pertamina's reduction in the price of non-subsidized fuel contributed to deflation. However, he noted that consumer purchasing power was still weak, which was confirmed by the Manufacturing PMI which was in contraction zone at 49.2 in September 2024. Renno added that the decline in new orders was one of the factors suppressing people's purchasing power.
Fithra Faisal, Senior Economist at Samuel Sekuritas Indonesia, underlined that the decline in Manufacturing PMI indicates a continued contraction in output and new orders. These conditions reflect challenges for domestic demand, with manufacturers taking steps to reduce purchases and draw down existing inventories in an effort to retrench amid market uncertainty.
In a separate report, Bank Central Asia (BCA) Senior Economist, Barra Kukuh Mamia, explained that China's production capacity imbalance and weakening global demand are creating deflationary pressures, including in Indonesia. He highlighted the impact of declining commodity exports and job losses in the labor-intensive manufacturing sector as serious threats to purchasing power in Indonesia.
Historical data on the Consumer Confidence Index (CCI) from Bank Indonesia shows a downward trend in September compared to August in recent years. Although the CCI in August 2024 stood at 124.4-the highest figure since May 2024-there is no guarantee that consumer confidence will continue to rise in the following months. Head of Bank Indonesia's Communications Department, Erwin Haryono, explained that consumer optimism in August was supported by an increase in the Current Economic Conditions Index (CCI) and the Consumer Expectations Index (CEC).
The Real Sales Index (RSI) released by Bank Indonesia (BI) showed a weakening since May 2024, coinciding with the fifth consecutive month of deflation in Indonesia. The lower IPR compared to April 2024 for the majority of groups, such as Food, Beverages & Tobacco, Motor Vehicle Fuel, Information and Communication Equipment, Other Household Supplies, Other Goods, as well as the Clothing group, indicates unfavorable sales and a decline in the level of public consumption.
IPR is one of the key indicators that reflect the level of consumption of Indonesians, which in turn contributes to Gross Domestic Product (GDP). When public consumption weakens, as reflected in a decline in IPR, overall economic growth can be hampered. Conversely, if IPR rises, it indicates an increase in public consumption which is usually followed by an increase in GDP and indicates better economic growth.
The weakening of IPR during this deflationary period shows that one of the main causes of deflation is the decline in people's purchasing power. Continued deflation is not only caused by declining food prices, but also by weakening consumption in general, which is evident from declining sales in various sectors. This reinforces the view that the Indonesian economy is facing demand-side pressures, which could negatively impact economic growth in the short term.
Source: cnbcindonesia.com
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