Bank Indonesia tries new ways to keep food prices under control

Vendors wait for customers at a traditional market in Tangerang, Banten, on April 3. - AFP

JAKARTA (The Jakarta Post/Asia News Network): Bank Indonesia (BI) has announced a “national movement” to help push food inflation down to between 5 per cent and 6 per cent by the end of the year.

BI Governor Perry Warjiyo explained on Wednesday (Aug 11) that the National Movement for Food Inflation Control (GNPIP) stipulated strategies to reduce prices of food commodities like chili, onions and eggs as well as to ensure food security.

“Food inflation has a fairly large weight within the composition of public expenditure, so controlling [this driver of] inflation will have a large social impact on people’s welfare,” he said during the GNPIP launch ceremony in Malang, East Java, where the programme will be implemented first, before other regions follow suit until the end of the year.

With regard to reducing commodity prices, Perry said the central bank, together with local administrations, planned to conduct market operations in various regions and intensify regional cooperation to distribute excess produce from some regions to regions that needed more supply.

BI, together with local governments, would also plant chili seeds and help set up greenhouses and digital-farming infrastructure in East Java as part of GNPIP’s urban- and digital-farming programme.

“[We] hope that, with excellent domestic food supply and distribution [...] the government can push food inflation down to [at least] below 10 per cent,” Bank Central Asia (BCA) chief economist David Sumual told The Jakarta Post on Thursday.

As Statistics Indonesia reported on Monday, the consumer price index (CPI) was up an annual 4.94 per cent in July, marking a seven-year high and exceeding BI’s latest full-year target of 4.6 per cent as well as the central bank’s July estimate of 4.89 per cent.

BI said inflation in July was driven mostly by volatile food prices that saw an annual 11.47 per cent increase due to high commodity prices and supply disruption, whereas core inflation, which directly reflected demand, increased at a slower pace of 2.86 per cent, lower than the central bank’s estimate of 2.99 per cent.

The food, beverage and tobacco expenditure group recorded annual inflation of 9.35 per cent in July. Major contributors to the spike in food prices on a monthly basis included red chilies, shallots and cayenne peppers.

Bank Permata chief economist Josua Pardede said he expected full-year food inflation to fall in the range of 10 per cent to 11 per cent, increasing significantly from food inflation of around 3.2 per cent in 2021.

He went on to say that the rapid increase in food prices in the last two months had been driven by increasing chili prices as the last dry season had led to crop failure.

Chili prices would potentially increase as Indonesia entered the wetter season, which usually begins around October.

Other food commodities, such as onions, tend to experience price spikes in the fourth quarter of the year.

“Considering these conditions, the government needs to intervene through distribution to ensure chili prices remain stable at the end of the year,” he said on Wednesday.

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