BI Predicts Food Inflation Will Lower From August 2022

BI Predicts Food Inflation Will Lower From August 2022

Governor of Bank Indonesia (BI) Perry Warjiyo estimates that food inflation will decline in August 2022 until the end of the year in line with the supply of food commodities that will increase. This was conveyed by Perry Warjiyo in the KSSK Press Conference on the Results of the 2022 KSSK III Periodic Meeting which was monitored virtually on Monday (1/8/2022). He said that monitoring of food availability had been carried out at 46 BI representative offices in various positions. “The supply of shallots, red chilies, cayenne pepper, chicken eggs, beef and of course now the good one is cooking oil,” Perry said, quoted Tuesday (2/8/2022).

The Central Statistics Agency (BPS) noted that the Consumer Price Index (CPI) inflation reached 4.94 percent in July 2022, the highest since October 2015. This figure is almost the same as BI’s forecast where CPI inflation in July 2022 is estimated to be at level 4. 89 percent. Nevertheless, Perry sees this as still reasonable because when viewed from the components, inflation which has almost reached 5 percent is mainly due to food price inflation. “That slightly higher difference in the estimate is still reasonable.

But please see what the components are. Why is the 4.94 percent CPI inflation mainly due to food price inflation?” As is known, food price inflation reached 11.47 percent year-on-year (yoy) in July 2022, higher than the previous month which was recorded at 10 ,07 percent yoy. Supply disruptions from abroad, furthermore, food prices as well as domestic conditions such as weather and seasonal factors have pushed food price inflation at that level. Although CPI inflation has almost reached 5 percent this month, Perry said there was no need to worry because core inflation in July 2022 was maintained at a low level of 2.86 percent (year-on-year/yoy), although slightly higher than inflation in the previous month which was recorded at 2.63 percent.

The maintained low core inflation is one of the basis for BI’s interest rate policy, because core inflation reflects supply and demand. “Thus, it does not automatically increase if interest rates in other countries increase, BI interest rates in Indonesia will also increase. Everything depends on domestic conditions, the first is that BI’s interest rate policy is based on projected core inflation and economic growth.