Bank Indonesia (BI) noted that the low core inflation, coupled with the low pressure of imported goods and domestic demand, has led to the declining trend of inflation rate.
The core inflation rate has dropped to 0.17 percent in October 2017, from 0.35 percent a month earlier. Likewise, inflation from administered and volatile food prices also declined.
As a result, BI revised its inflation target for this year down to 3-3.5 percent from 4 percent, plus or minus 1.
The central bank believes that the country`s inflation rate throughout this year will stand at 3-3.5 percent, at the lower end of the inflation target range of three to five percent.
"By the end of 2017, the inflation is expected to remain low at 3-3.5 percent," BI Governor, Agus Martowardojo, stated in a press conference here on Nov 16.
Indonesia`s inflation stood at 3.02 percent year-on-year in 2016.
The central bank believed that the inflationary pressure from volatile foods will remain under control until the end of this year mainly due to control in the supply of goods, which will eventually lead to price stability. Likewise, the administered prices of goods will also remain controllable, he remarked.
In October 2017, the monthly inflation rose by 0.01 percent, bringing the annual inflation to 3.58 percent.
BI Deputy Governor, Perry Warjiyo, pointed out that the low inflation rate should have increased the people`s purchasing power. However, the purchasing power is highly dependent on the economic recovery.
The Central Statistics Agency (BPS) announced on Nov 6 that household consumption in the July-September 2017 quarter grew 4.93 percent, falling slightly from 4.95 percent in the previous quarter and 5.01 percent in the same quarter last year.
Several components of household consumption in the third quarter of 2017 slightly slowed down as compared to the same period last year, with food and beverage consumption falling to 5.04 percent from 5,23 percent, clothing and footwear declining to 2 percent from 2.24 percent, and housing and household utensils falling to 4.14 percent from 4.17 percent.
However, components of household consumption, including healthcare and education, rose to 5.38 percent from 5.36 percent, and restaurant and hotel increased to 5.52 percent from 5.01 percent.
The declining household consumption of several goods and services has become a center of attention, as household consumption gave the greatest contribution of 55.68 percent to the national gross domestic product in the third quarter of 2017.
BPS Chairman Suhariyanto remarked that a shift in public consumption pattern is one of the causes of lower-than-expected household consumption growth in the third quarter of 2017.
He noted that there has been a shift in public consumption pattern from non-leisure to leisure.
However, Finance Minister Sri Mulyani Indrawati revealed that there is no problem with the public purchasing power, which allegedly caused the lower-than-expected household consumption growth in the past couple of quarters, particularly when it comes to the middle to upper classes.
The minister alleged that the sluggish domestic consumption is the result of a change in consumption pattern among the middle and upper class people or economic activities that the BPS has not entirely recorded.
She stated that she will study the consumption pattern of middle and upper class societies, who have given a significant contribution to household consumption.
"It is the upper class society who has purchasing power. They put their money in banks. This means a problem. Have they changed their consumption pattern? But the change has not been seen from all types of consumption recorded by the BPS," she pointed out here on Nov 8.
Sri Mulyani added that the middle and upper class people have much deposits in banks as the deposits grow more than Rp5 billion. In fact, third party fund placement in banks has continued to increase.
But she refused to divulge the reasons as to why the middle and upper class people hold purchasing power. As a matter of fact, consumer confidence index is on the rise.
"Therefore, there is something wrong here. They have high confidence and purchasing power, but some of them are not recorded. This must draw our attention. We will continue to discuss and supervise it," she noted.
The relatively low inflation rate before the end of this year should serve as an incentive for the public to go shopping. As such, household consumption will contribute significantly to the economic growth, Sri Mulyani remarked.
The government has been making every effort to provide social assistance to the lower and middle class societies, through routine expenditure in the state budget, as part of the efforts to maintain purchasing power without disrupting consumption pattern, she added.
She revealed that the middle and lower class people have a problem with purchasing power due to low growth of wages at a farmer level.
Warjiyo pointed out that while the economic recovery is ongoing, household consumption continues to improve, though in an uneven manner.
The increase in household consumption is reflected by an 18.1 percent rise in the sales of motorcycles in the third quarter of 2017, while car sales grew 7.8 percent, and retail sales increased five to six percent, he added.
(T.S012/B/KR-BSR/A014)
Reporter: Suharto
Editor: Heru Purwanto
Copyright © ANTARA 2017
