Economist: Inflation Will Increase When Electricity Rates Discount Ends At The End Of February 2025

JAKARTA - PermataBank Head of Macroeconomics and Market Research Faisal Rachman estimates that inflation in March 2025 will tend to increase again after the electricity tariff discount program ends at the end of February 2025.

Based on data from the Central Statistics Agency (BPS), there was a monthly deflation of 0.76 percent month to month (mtm) in January 2025. The electricity tariff discount program was the main cause of the monthly deflation.

"Maybe in January-February it was low (inflation), but in March the possibility of inflation could increase," said Faisal in the Media Briefing PIER Economic Review: FY 2024 virtually in Jakarta, quoted by Antara, Monday, February 10.

He said that the low-maintained Consumer Price Index (JCI) inflation in January 2025 was below the Bank Indonesia (BI) target with a lower limit of 1.5 percent.

The deflation of 0.76 percent mtm in January this year is different from the previous trend where in January inflation is usually recorded because the ongoing rainy season encourages food prices to soar.

The January 2025 deflation was caused by a sharp decline in the price group regulated by the government (administered price) with monthly deflation reaching 7.38 percent mtm.

Based on the group, housing, water, electricity, and household fuel groups experienced an annual deflation of 8.75 percent yoy, with a deflation of 1.39 percent.

"In terms of components, housing, water, electricity is affected in deflation 8.75 percent year on year (yoy) in January, because of that factor (electric tariff discount). But if we remove it, inflation will still tend to be above 1.5 percent. So indeed this is purely only due to electrity," explained Faisal.

When the electricity tariff returns to normal and there is no extension of the government's discount program policy, it is estimated that inflation will increase again.

Moreover, the month of Ramadan falls in March 2025 with demand that tends to increase during that period.

The food, beverage and tobacco group in January 2025 still recorded inflation at 3.69 percent yoy, with a contribution of 1.07 percent inflation.

Overall, PermataBank projects that Indonesia's inflation in 2025 will be in the range of 2 percent.

Faisal also highlighted the potential for imported inflation in line with the pressure exerted from the continued weakening of the rupiah. The weakening of the rupiah against the US dollar will increase the cost of importing raw materials, which in turn can boost price increases at the consumer level.

He estimates that the space for cutting the BI or BI-Rate benchmark interest rate in the future is likely to be limited, as pressure from the global side continues. This condition puts pressure on the capital outflow, even putting pressure on the rupiah.

"But second round if the rupiah continues to weaken, it can provide imported inflation to the supply side. And maybe it can be passed through also to the consumer side, it provides risks," he said.