Economist: Deflation In January 2025 Is A Signal For Weakening People's Purchasing Power

JAKARTA - Jakarta Veterans UPN Public Policy Economist and Observer Achmad Nur Hidayat assessed that the deflation in January 2025 which was recorded at 0.76 percent (month to month/mtm) was a signal of weakening people's purchasing power.

Although the Central Statistics Agency (BPS) stated that this deflation was caused by a 50 percent discount on electricity rates for household customers with a power of up to 2,200 VA, Achmad views this trend as showing more serious indications of domestic demand.

"Deep analysis reveals that although this factor contributes to the decline in the consumer price index (JCI), this significant deflation figure is clear evidence of the weakening people's purchasing power," said Achmad, in Jakarta, quoted by Antara, Tuesday, February 4.

Based on a Bank Indonesia (BI) report, the Consumer Confidence Index (IKK) has continued to decline since mid-2024, reflecting public caution in shopping.

The annual trend of inflation which continues to slow down, from 3.00 percent (year on year / yoy) in April 2024 to only 2.12 percent (yoy) in January 2025, further strengthens indications of weak household consumption.

Achmad assessed that this decrease in purchasing power was not just economic fluctuations, but reflected challenges that must be overcome immediately.

BPS data shows the number of middle class populations in Indonesia shrank from 21.5 percent in 2019 to 17.1 percent in 2024.

He said that this meant that around 10 million individuals experienced economic uncertainty without receiving significant assistance from the government.

The middle class has a vital role in maintaining national economic balance. They are the main consumers for the goods and services sector, and are also groups that have considerable investment capabilities. The decline in the number of middle classes means reduced household consumption, which directly has an impact on national economic growth," he said again.

Furthermore, Achmad said that the weak purchasing power of the community also had an impact on the business sector, especially retail and manufacturing.

The retail sales index, which has continued to decline since the third quarter of 2024, shows that consumers are increasingly reducing their spending.

The high cost of production due to the increase in the price of raw materials and global energy, has also further suppressed the margin of business profits.

As a result, several small and medium enterprises (SMEs) were forced to make efficiency, including reduced labor.

Some of them were forced to close their businesses, while others had to make efficiency by reducing their workforce. This phenomenon has a domino effect, where the increasing unemployment rate further exacerbates people's purchasing power," he also said.

To overcome the weakening of purchasing power, Achmad suggested several strategic steps.

First, creating quality job opportunities through incentives for labor-intensive industries.

Second, strengthening social protection programs such as direct cash assistance (BLT) and subsidies for basic commodities that are more targeted.

Third, controlling the price of strategic commodities by strengthening coordination between Bank Indonesia and the government through the Central and Regional Inflation Control Team (TPIP and TPID).

The simplification of regulations and the increase in investment incentives can attract more foreign and domestic capital to accelerate industrial growth. Thus, the creation of new jobs can be accelerated and people's purchasing power can be improved in a sustainable manner," he said again.