Economist: Extended Deflation Caused People's Purchasing Power

Illustration. (Photo: Doc. Antara)

JAKARTA - Diponegoro University Economist Semarang Prof. FX Sugiyanto said that the prolonged deflation experienced by Indonesia, including Central Java, was caused by the falling purchasing power of the people.

"In a historical perspective, the months of deflation has only been experienced for the first time," he said, in Semarang, quoted from Antara, Tuesday, October 8.

According to him, deflation that occurs in one or two months can have a good impact on the community because they can shop at a relatively cheap and affordable price.

However, he said, if deflation occurs for too long, it can be a strong indication that people are holding back money or people's purchasing power has indeed decreased.

"If (deflation) takes too long, it could be a strong indication that people are holding back their money for shopping or not having money. Well, these two possibilities can happen. I am supported by data," he said.

Judging from the income group, he said, 20 percent of the income group is the highest, 40 percent is middle, and 40 percent is the lowest or poorest income.

"Well, the middle (income) is starting to decrease purchasing power, and this is risky. Second, people then better hold back (shopping) because they are worried that there will be no improvement (income)," he said.

He admitted that the decline in the purchasing power of the middle class was due to the large number of layoffs (PHK) by companies which caused the unemployment rate to increase.

As an academic, the Professor of the Faculty of Economics and Business Undip reminded that the danger faced is actually not open unemployment, but those who are half unemployed.

"Those who work half an unemployed who sometimes work for no more than five hours. That's a lot, about 13 million out of 19 million (workers) in Central Java," he said.

Sugiyanto said that the current current deflation condition was different from the 1998 monetary crisis because it was sudden and almost everyone's income was lost immediately.

"If this is not sudden, there is a process whose purchasing power has decreased and it turns out that the purchasing power is enjoyed by the upper class more so that the indicators will be that the macro in the Gini index (economic inequality) will increase," he said.

If it is not addressed immediately and allowed to drag on, he continued, it will be very risky because high unemployment rates can cause social vulnerability.

A short-term solution, he said, was carried out by providing social assistance (bansos) or direct assistance to the community to help boost people's purchasing power, but would be very risky in political momentum like now.

"The long-term solution, yes, creates jobs. So, like it or not, the new government later, including the provincial government, must think about creating jobs," he said.