Core Inflation Continues To Slope, Interest Rates Ready To Drop In August 2023?

JAKARTA The Central Statistics Agency (BPS) recorded a decrease in the core interest rate in July 2023 to 2.43 percent year on year (yoy). This figure is sloping from the previous month's score of 2.58 percent.

Deputy for Distribution and Services Statistics, BPS Pudji Ismartini, said that the core component annually contributes the most (from other components, namely price inflation regulated by the government (administered price), volatile price inflation (volatile inflation).

"The dominant commodities that contribute to core inflation include house contract rates, house rentals, jewelry gold, tertiary fees, household assistant wages, and school fees," he said in Jakarta on Tuesday, August 1.

According to Pudji, the core and component components whose prices are regulated by the government contribute/donate to inflation yoy by 1.57 percent and 1.51 percent, respectively.

Meanwhile, the volatile component does not contribute / contribute to yoy inflation.

"Meanwhile, the core components, components whose prices are regulated by the government, and the volatile components contribute to/donate inflation monthly (month to month/mtm) by 0.09 percent, 0.09 percent, and 0.03 percent, respectively," he said.

VOI noted that the core inflation rate continued to decline this year. Starting in January 2023 which was 3.27 percent yoy. Then in February it was 3.09 percent, March it was 2.94 percent, April 2023 it was 2.83 percent, and May it was 2.66 percent year on year.

On the other hand, the news of the decline in core inflation is a positive signal for Bank Indonesia (BI) to make adjustments to interest rates.

The reason is, the last time BI raised interest rate was in January 2023 at 25 basis points (bps) from 5.50 percent to 5.75 percent. After that, interest rates have not moved until today.

Meanwhile, core inflation is used as one of the central bank's references in setting interest rates because it reflects the real demand and supply in the community. BI itself targets core inflation in 2023 at 3 percent plus minus 1 percent and for 2024 at 2.5 percent plus minus 1 percent.