Balancing Higher Energy Costs With Food Prices May Bear Fruit: Bank Danamon

Indonesia's annual inflation rate in January is expected to ease from a month earlier. (JG Photo/Yudha Baskoro)

By : Jakarta Globe | on 11:15 AM November 02, 2017
Category : Business, Analysis

Indonesia's annual inflation slowed for a fourth month in October, hitting its lowest rate since January, as food prices remain stable.

Bank Danamon Indonesia on Thursday (02/11) released its short note "Indonesia Economic Briefing," written by economists Wisnu Wardana and Anton Hendranata, who observe that deflation in staple food prices continues to be deeper than last year.

The Central Statistics Agency (BPS) announced a food inflation of 0.01 percent month-on-month for October. The last time volatile food prices inflated this low was in 2004, yet this year is was intentional. According to Wisnu and Anton, the government's efforts to lower food prices in compensating for higher energy costs may bear fruit.

BPS data on average monthly spending on foods and non-food products indicates a change in consumer behavior. There is a significant shift from home cooking to buying prepared meals (dining out or takeaways). In 2012, the weighting between raw food and prepared food to total inflation were 19 percent and 16 percent respectively. The numbers may converge in the next consumer price index, which the agency publishes every five years.

During the 2010-12 economic boom, consumers could allocate more of their spending to non-food items. But during the 2014-16 slowdown, spending on food took over again. There were two areas in the non-food segment that consumers could not avert paying: taxes, insurance and housing.

(Courtesy of Bank Danamon) (Courtesy of Bank Danamon)

Policy implications? According to Bank Danamon's report, there are no imminent risks that could have an impact on interest rates. Policymakers and market players will be watching for the next Federal Reserve's and Bank of England's interest rate decision, both to be announced this week.

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