Increased Core Inflation, Get Ready For The BI Interest Tribe To Rise Again?

Illustration (Photo: Freepic)

JAKARTA Inflation Inti is known to have increased at the close of this year to 3.36 percent year on year (yoy) in December 2022. This figure is higher than November 2022 which was 3.30 percent.

Meanwhile, monthly (month to month/mtm), core inflation moved to 0.22 percent or higher than the previous month of 0.15 percent, mainly contributed by housing contract commodities. This was reported by the Central Statistics Agency (BPS) which was reported earlier this week.

For information, core inflation is one of the important components that underlies Bank Indonesia in setting a benchmark interest rate policy because it directly reflects the demand side.

VOI noted that the central bank initially targeted a reduction in core inflation to a level of 3 percent plus minus 1 percent in the second half of 2023.

This effort was made through an increase in the benchmark interest rate by 25 basis points (bps) in August 2022.

As a result, the BI rate is perched at 3.75 percent after previously lasting quite a long time at the level of 3.50 percent during the early days of the pandemic.

Furthermore, Bank Indonesia sharpened the target of reducing core inflation by 3 percent plus minus 1 percent to the first half of 2023.

As a result, the monetary authority is increasingly aggressive by raising the BI rate by 50 bps in three consecutive months to 5.25 percent in November 2022.

"Bank Indonesia wants to ensure core inflation returns to its target 3 percent plus minus 1 percent early, namely to the first half of 2023," said BI Governor Perry Warjiyo some time ago.

In December 2022, Bank Indonesia's aggressive attitude began to slope by only raising the BI rate by 25 bps to 5.5 percent considering that during that period inflation development was also getting more under control.

Meanwhile, in early 2023 the inflation rate re-gased after passing the momentum of the Christmas and New Year holidays which made the demand side of the community high. Due to this condition, Bank Indonesia has at least two strong reasons to raise the BI rate again.

First, the increase in core inflation, both on an annual and monthly basis. Second, the target is 3 percent plus minus 1 percent which has not been fulfilled in the first half of this year.