Expert Warns of 3.6% Year-on-Year Inflation Rate Amid El Nino Threats

TEMPO.CO, Jakarta – Faisal Rachman, an Economist from Mandiri Bank predicted a downward trend on the year-on-year inflation rate in the second half of 2023, reaching a 3.6% rate. The inflation, however, is expected to stay within target due to the controlled food prices and the high base effect caused by subsidized fuel prices in the previous year.

“However, El Nino and extreme weather bring challenges and its effects on food inflation need to be carefully anticipated,” said Faisal in a written statement to Tempo on Monday, July 31, 2023. The inflation rate could be suppressed to a 3% year-on-year rate if the government manages to effectively control food prices and supplies.

Consumer Price Index is predicted to experience a  seasonal rise from 0.14% to 0.21% in July, supported by education inflation due to the new school year. “But we estimated the food inflation rate to be manageable this period,” he said.

Overall, Faisal projected that the year-to-date inflation rate will reach 1.45% for January-July 2023 which will be lower than the previous year’s rate of 3.85% rate. 

Further, Faisal said that the year-on-year inflation rate for July 2023 is in line with the Indonesia Bank prediction, a 2% to 4% rate. Faisal mentioned that the Consumer Price Index year-on-year inflation will decline from 3.52% to a 3.08% rate in July. The downward potential of CPI is caused by high-base-effect due to the inflation rate in July, fuel prices soaring, non-subsidized LPG cylinders, and the electrical fee for households over 3,500 VA. 

Meanwhile, the core inflation rate is expected to decrease from 2.58% y-o-y on June 2023 to 2.50% y-o-y in July 2023. “However, it is likelier this was caused by food inflation rather than the decline in demand,” said Faisal. He added that the food prices and the supply input declined but the demand is still strong, supported by the recovering public mobility.

RIRI RAHAYU

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