Indonesia’s consumer price index (CPI) posted a rare decrease in February, the first year-on-year deflation since March 2000, based on official statistics reported on Monday. The decline was due to sharp government subsidies in electricity bills as a measure to spur economic growth.
CPI declined by 0.09% from last year, below market forecasts for 0.60% inflation. This is the second monthly decline in consecutive months that recorded inflation below the central bank target of 1.5% to 3.5% after January experienced a 0.76% inflation rate.
One of the biggest causes of the deflation was a 50% reduction in electricity rates for some consumers in January and February. Also, better food production after the drought last year resulted in decreasing prices of staple foods like rice, tomatoes, and red chilies.
“This deflation was not caused by sluggish demand but by the lower electricity tariffs,” Statistics Indonesia head Amalia Adininggar Widyasanti explained at a press conference.
In spite of the overall deflation, core inflation, excluding volatile food prices and government-controlled expenses, climbed to 2.48% year-on-year, marginally higher than economists’ projection of 2.42% and January’s 2.36%.
Economists see inflation picking up in March when the electricity tariff discounts lapse. But other government actions, such as discounts on air travel and toll roads during Ramadan, are seen to keep inflation rates in check.
Hosianna Situmorang, Bank Danamon’s economist, estimated that with these budget stimuli, Indonesia’s economic growth would be between 5.1% and 5.2% in 2024, meeting the government target of 5.2%. The economy grew 5.03% last year.