The Central Statistics Agency (BPS) reported that Indonesia experienced a monthly deflation of 0.18% in July 2024, with the Consumer Price Index (CPI) dropping from 106.28 in June 2024 to 106.09 in July 2024. 

"This month's deflation is deeper compared to June 2024 and marks the third deflation of the year," said Acting Head of BPS, Amalia Adininggar Widyasanti, during a press conference in Jakarta on Thursday, August 1. 

Amalia explained that the volatile food component saw a deflation of 1.92% month-on-month. She detailed that the largest contributor to monthly deflation was the food, beverage, and tobacco group, which experienced a deflation of 0.97%, contributing to an overall deflation of 0.28%. 

This data indicates that deflation has occurred over the past three months, largely driven by the volatile food sector, and is a monthly trend. "This is similar to what happened from July to September 2020, so this is not unprecedented," Ms. Amalia noted. 

Deflation can occur due to falling prices or reduced demand, particularly if the production of goods or services exceeds market demand. 

Cautious Interpretation of Purchasing Power 

However, Amalia assured that three consecutive months of deflation do not necessarily imply a decrease in purchasing power. She emphasized that analyzing consumer purchasing power requires careful consideration. 

"There needs to be further analysis because falling prices do not always indicate a decrease in purchasing power. We need to understand the underlying causes of deflation," Ms. Amalia said. 

According to regional inflation control meetings, one measure to counter inflation in volatile commodity prices is to ensure adequate market supply. The current sufficient supply in the market has contributed to the deflation of these goods. 

"Thus, the food and beverage component has contributed to deflation in volatile prices," She added. 

She also mentioned that jewelry, ground coffee, machine-made cigarettes, and hand-rolled kretek cigarettes each contributed to inflation by 0.01%, while the education sector contributed to inflation by 0.04%, resulting in an overall inflation of 0.09%. 

"Care must be taken when interpreting weakened purchasing power, as deflation alone is not the sole indicator of reduced consumer spending," Amalia cautioned. 

Original article here

This article is published in partnership with Katadata