Economists Predict Inflation Begins To Decrease In The Third Quarter Of 2024

JAKARTA - Economist Josua Pardede projects that the inflation rate will begin to decline in the third quarter of 2024.

Meanwhile, in the first half of this year, the government needs to be prepared to face high inflation risks. However, overall, inflation in 2024 is still in the range of 3 percent in accordance with the Bank Indonesia (BI) target of 1.5-3.5 percent.

"We estimate that overall inflation in 2024 will be in the range of 3 percent, in the range of Bank Indonesia's target of 1.5 - 3.5 percent. This expectation is based on the anticipation that inflation will begin to decline in the second half of 2024," said the Head of the Bank Permata Economist, quoted from Antara, Friday, March 1.

The Central Statistics Agency (BPS) this Friday announced a monthly inflation rate of 0.37 percent in February 2024 (month-to-month/mtm).

Meanwhile, on an annual basis inflation was recorded at 2.75 percent (year-on-year/yoy), an increase compared to the previous month which was recorded at 2.57 percent yoy.

According to Josua, the continued inflation rate in the first half of this year was due to an increase in the price of basic necessities, especially rice. BPS recorded rice inflation in February of 5.32 percent.

The commodity of rice has contributed to monthly inflation by 0.21 percent, making it the largest contributor to inflation this month.

"The increase in rice prices since July 2023, caused by supply problems, has contributed 0.67 percent to annual general inflation in February 2024," he said.

He detailed that the main factor behind the decline in rice production was due to the effect of El-Nino which caused a decrease in rice production by 1.40 percent in 2023 compared to 2022, resulting in scarcity in the market.

Considering the high risk of inflation in the first half of 2024, BI is predicted to maintain the BI (BI-Rate) benchmark interest rate in the short term.

In accordance with the latest statement from BI, changes in the direction of monetary policy will depend on the risk of controlled inflation both domestically and globally.

Therefore, in the second half of 2024, BI is expected to lower the benchmark interest rate by 50 bps to 5.50 percent.

Josua further explained that the 2024 February inflation experienced a significant increase, up from 0.04 percent mtm to 0.37 percent mtm.

On an annual basis, the inflation rate also increased, up to 2.75 percent yoy compared to 2.57 percent yoy in January 2024.

"The increase in inflation is due to volatile price inflation, especially in foodstuffs groups. However, core inflation and government-regulated price inflation tend to be controlled," said Josua.