Jakarta. Ajib Hamdani, an economic policy analyst at the Indonesian Employers Association (Apindo), warned that Indonesia faces significant economic challenges, as indicated by five consecutive months of deflation and declining manufacturing activity.

According to Ajib, the ongoing deflation is not merely the result of falling commodity prices, as suggested by the Central Statistics Agency (BPS), or due to the effectiveness of government inflation control teams. He argued that this situation reflects a decline in public purchasing power. If prices are stabilizing, it is likely due to reduced demand.

"From the supply side, our indicators show that there is also pressure, particularly from the Purchasing Managers' Index (PMI), which has experienced a downward trend for five consecutive months since April, with the PMI remaining below 50," he told IDTV on Wednesday.

Previously, BPS reported a deflation of 0.12 percent in September 2024, marking the fifth monthly deflation this year, with an annual inflation rate of 1.84 percent.

Chief Economic Affairs Minister Airlangga Hartarto said that deflation is driven by effective food price management, not a decline in consumer purchasing power.

"Core inflation continues to rise, and if it increases, it means purchasing power is improving," Airlangga said on Tuesday. "This deflation is not a sign of weakened purchasing power but rather the result of the TPIP and TPID’s (government inflation control teams) efforts, including governors managing to reduce volatile prices," he added.

The S&P Global Purchasing Managers' Index (PMI) for manufacturing in Indonesia dropped to 48.9 in August 2024, down from 49.3 in July, indicating the second consecutive month of contraction in factory activity. A reading below 50 signifies a contraction.