Indonesia's inflation rate fell to its lowest level in nearly three years, reaching 1.84% in September, according to data released by Statistics Indonesia (BPS) on Tuesday. This marked a decline from 2.12% in August and was the lowest inflation rate since November 2021. The figure remained within Bank Indonesia’s (BI) inflation target range of 1.5% to 3.5%. 

 

The decline in the inflation rate was largely driven by falling food prices, particularly for fresh commodities like red chilies, chicken eggs, and poultry meat. These price reductions followed an abundant supply from farms during the recent harvest season.  

 

According to BPS interim head Amalia Adininggar Widyasanti, "The September index drop is primarily due to lower production costs on food and livestock and ample supply from the harvest season." The consumer price index (CPI) dipped by 0.12% month-on-month in September, marking the steepest monthly decline since 2020. 

 

Food prices, which are a key contributor to overall inflation, grew by 2.57% in September, compared with 3.39% in August. Meanwhile, annual core inflation, which excludes volatile food prices and government-controlled items, edged up slightly to 2.09% from 2.03% in August. 

 

The continued easing of inflationary pressures has raised expectations for further monetary policy easing by Bank Indonesia. The central bank already lowered its benchmark interest rate by 25 basis points to 6.00% in September—the first reduction in more than three years—as part of efforts to bolster economic growth amid slowing inflation. This cut came just hours before the U.S. Federal Reserve announced a 50-basis point rate cut of its own, its first in four years. 

 

Economists are predicting additional rate cuts by the end of the year. Maybank Indonesia economist Myrdal Gunarto stated that the government’s policy to maintain price stability for strategic commodities and the abundant food supply would give BI "room to loosen its monetary stance," as quoted by The Jakarta Post. He expects BI to reduce the benchmark rate to 5.25% by year-end, revising his earlier forecast of 5.75%. 

 

Also quoted from the same The Jakarta Post article, Josua Pardede, chief economist at Bank Permata, shared a similar outlook, forecasting that the inflation rate will remain below 2% for the remainder of 2024.  

 

"The inflation outlook may provide room for Bank Indonesia to lower the BI-Rate in response to potential Fed rate cuts," he said.  

 

He also noted that government measures, such as postponing excise duties on plastics and sugar-sweetened beverages, would help ease inflationary pressure on consumers. 

 

Bank Danamon economist Hosianna Evalita Situmorang also highlighted the stabilization of global oil prices and the resilience of the rupiah as positive factors supporting further rate cuts. Situmorang added that expectations of additional rate cuts by the Federal Reserve in November and December could give BI even more flexibility in its monetary policy decisions.