Global Situation Affects National Economy
The global price increase has affected global inflation. As a result, the International Monetary Fund (IMF) has revised its inflation projection for this year.
The global rise in food and energy prices has begun to affect a number of economic sectors in the country. The government aims to maintain the stability of food prices at the farmer and consumer levels.
JAKARTA, KOMPAS — The global increase in food and energy prices has started to affect Indonesia’s food, industry, transportation and construction sectors, as indicated by the rise in consumer and wholesale price indices. The government needs to closely monitor and respond to the inflationary trend.
Statistics Indonesia (BPS) head Margo Yuwono said in Jakarta on Thursday (2/6/2022) that the Russia-Ukraine war and the restrictions imposed by a number of producing countries had led to the continuing increase in global food and energy prices. The prices of several commodities such as oil and natural gas, crude palm oil (CPO), wheat, soybean, corn, meat, and fertilizers, he said, remained volatile and high.
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> Prices of Some Basic Commodities Soar
The global price increase has affected global inflation. As a result, the International Monetary Fund (IMF) has revised its inflation projection for this year. The inflation rate in developed countries has been revised upwards from 3.9 percent to 5.7 percent, while the estimated inflation in developing countries has been raised from 5.9 percent to 8.7 percent.
"In Indonesia, the impact started to be felt in the beginning of 2022. The impact on domestic inflation has begun, although for some commodities, the impact is not too big," Margo told a press conference.
The inflation rate is still within the range of the annual inflation target of 3-4 percent as set by the government and Bank Indonesia.
According the BPS report, national inflation in May 2022 reached 0.4 percent on a monthly basis and 3.55 percent on an annual basis. The inflation rate is still within the range of the annual inflation target of 3-4 percent as set by the government and Bank Indonesia.
Commodities that contributed greatly to monthly inflation included air freight with a share of 0.07 percent, chicken eggs with 0.05 percent, fresh fish with 0.04 percent, and shallots with 0.04 percent. Meanwhile, cooking oil, which contributed 0.19 percent to inflation in April 2022, experienced deflation of 0.01 percent in May 2022.
Margo explained that the increase in air freight rates was caused not only by high demand, but also the increase in world crude oil prices. The increase in global oil prices prompted the government to increase the price of aviation fuel (Avtur) and high-octane gasoline Pertamax, and prompted airlines to adjust their ticket prices.
Cooking oil prices were influenced by the increase in global CPO prices. However, the export ban on CPO and derivative products between 28 April and 22 May 2022, led to a fall in cooking oil prices, which contributed to deflation in May.
“The increase in the price of chicken eggs, wheat flour and tempeh was also influenced by the increase in global prices of animal feed, wheat and soybean. Even the rise in energy prices and transportation costs has also started to affect the construction sector," said Margo.
The share of the agricultural and industrial sectors in the WPI was 0.02 percent and 0.31 percent, respectively.
The share of the agricultural and industrial sectors in the WPI was 0.02 percent and 0.31 percent, respectively.This was also reflected in the May 2022 Wholesale Price Index (WPI), which increased 0.33 percent on a monthly basis and 4.23 percent on an annual basis. The share of the agricultural and industrial sectors in the WPI was 0.02 percent and 0.31 percent, respectively.
The agricultural commodity that contributed greatly to the rise in WPI was chicken eggs, at 0.05 percent. In the industrial sector, the commodities that contributed to inflation were wheat flour, beef, and instant noodles, at 0.01 percent each.
The International Food Policy Research Institute (IFPRI) said that since Russia's invasion of Ukraine on 24 Feb. 2022, the number of countries restricting exports had also increased.Related to the increased prices of a number of imported commodities, industrial players in the country have begun to look for alternative raw material sources and plan to increase the prices of their products. The International Food Policy Research Institute (IFPRI) said that since Russia's invasion of Ukraine on 24 Feb. 2022, the number of countries restricting exports had also increased.
As of 1 June 2022, as many as 20 countries were still limiting their exports of food commodities, while seven countries required special export permits, and three countries had increased their export taxes or levies. The commodities include wheat, sugar, rice, meat, and CPO, as well as oil and sunflower seeds. In addition, four countries were still limiting fertilizer exports, two countries were implementing special export permits, and one country had raised export taxes.
FER down
The increase in food prices in May 2022 was not followed by improvements in the farmers' exchange rate (FER), an indicator of the buying power of farmers in rural areas. BPS noted that the FER in May was 105.41, down 2.81 percent compared to the FER in April.
The largest decline in the FER occurred in the subsector of smallholder plantations, which fell 9.29 percent to 123.56. This occurred because the price index for plantation commodities fell 2.37 percent, mainly due to the decline in the prices of palm oil, coconut and rubber. Meanwhile, the FER of the food crops subsector fell 0.32 percent to 97.04.
Palm Oil Farmers Union (SPKS) secretary-general Mansuetus Darto said that the price of fresh fruit bunches (FFB) at the farm level had declined from the impacts of the export ban on CPO and some derivative products. He hoped that the FFB price would increase again, as the government had lifted the ban on CPO exports. The government should closely monitor the FFB price following the lifting of the export ban, he added.
Meanwhile, in the midst of the rice harvest and sugarcane processing season, the National Food Agency and state-owned food holding company ID Food were trying to prevent a fall in the prices of unhusked rice and sugar. The price of dried unhusked rice (GKP) at farm gate would be maintained at a minimum Rp 4,200 per kilogram, while the price of sugar will be maintained at a minimum Rp11,500 per kilogram.
They are also expected to increase their purchases of unhusked rice to maintain the rice supply and prices, through both the government's rice reserve scheme (CBP) and commercial activities.
National Food Agency head Arief Prasetyo Adi has asked business actors, Perum Bulog and ID Food to work together to keep the price of the unhusked rice from falling below Rp 4,200 per kg. They are also expected to increase their purchases of unhusked rice to maintain the rice supply and prices, through both the government's rice reserve scheme (CBP) and commercial activities.
"The food reserve is important, as a number of countries, such as India, Vietnam and Thailand, have unveiled plans to limit their exports of basic commodities," said Arief.
The National Food Agency, Arief continued, had asked sugar factories managed by ID Food, PT Perkebunan Nusantara, and the private sector to help maintain price stability at the farm and consumer levels. The government had set the farm-level sugar purchase price (HPP) at Rp 11,500 per kg, up Rp 1,000 per kg from last year's HPP.
"I hope the purchasing price of the farmers’ sugar can be maintained at a minimum Rp 11,500 per kilogram. If the auction price reaches Rp 12,000 per kg, the farmers’ sugar must be purchased at the auction price. In the downstream, or at the consumer level, we will try to keep the price at Rp 13,500 per kg," he said. (HEN)
This article was translated by Hendarsyah Tarmizi.