BI Reveals 3 Months Of Consecutive Deflation Is Not A Sign Of Decreased Purchasing Power

JAKARTA - Bank Indonesia (BI) assesses that the deflation that occurred in three consecutive months from May to June 2024 was not a sign of a slowdown in purchasing power to the economic recession.

Director of the Department of Economic Policy & Monetary of Bank Indonesia (BI) 'July Budi Winantya explained that the deflation that occurred in the last few months was influenced by a decrease in inflation in volatile food components or volatile food prices, where this component was corrected to below 5 percent compared to the previous months which had reached 9 percent.

"Regarding the purchasing power of all kinds, it is associated with core inflation, but in yesterday's pres conference, core inflation, if we look at it from the expectations that are maintained, from sufficient economic capacity and from controlled imported inflation," said Juli in a media briefing in Bali, quoted Monday, August 26.

Meanwhile, BI Assistant Governor Erwin Haryono explained that the deflation that occurred in the three consecutive months was influenced by the inflation component of contracted food prices.

According to Erwin, at previous moments, food price inflation was volatile, it had recorded such a high number that caused food prices to rise and had indicated that there was a food emergency.

"That was a lot of food emergency yesterday, prices went up, life was difficult because buying expensive food, but it fell consistently and that's what caused the Consumer Price Index (JCI) to deflate," said Erwin.

Erwin emphasized that currently his party is still wary of the dynamics of the domestic and global economy that occur, especially regarding the amount of inflation.

However, Erwin explained that related to deflation that occurred several consecutive months, it occurred due to corrected volatile food components.

"But that doesn't mean we don't pay attention to this, we continue to pay attention to this but the IHK indicators so far the components show a bigger signing in volatile food," concluded Erwin.

For information, the Central Statistics Agency (BPS) reported that in July 2024 in Indonesia there was a deflation of 0.18 percent month to month (mom) compared to the previous month. The deflation rate in July was the deepest in a series of three months. Last May, deflation was recorded at 0.03 percent, then continued in June at 0.08 percent.

Meanwhile, BPS recorded successive deflation for three consecutive months, this is not the first time this has happened. Where Indonesia had recorded deflation for three months in a row during the Covid-19 pandemic, the economy was suspended.

"This actually happened in July-September 2020. So, [the deflation of three consecutive months] is not the first time. The July deflation was contributed by volatile food," said Acting Head of BPS Amalia Adininggar Widyasanti.

However, Amalia was reluctant to mention that the successive deflation in the last three months was an indication of weakening people's purchasing power.

"To conclude whether deflation is an indicator of people's sluggish purchasing power, they must be careful, there must be further analysis," said Amalia.

Amalia explained that the price reduction recorded in the deflation rate does not necessarily indicate a decrease in people's purchasing power. Because the current condition of market supply is abundant, causing a decrease in supply prices.

"It cannot necessarily conclude that there is a decrease in purchasing power due to deflation," said Amalia.