Jakarta, Indonesia Sentinel — Indonesia Consumer Price Index (IHK) fell again in September 2024, marking the fifth consecutive month of deflation, according to the Central Statistics Agency (BPS). The country now faces a deflation streak that could rival the worst record of seven-month deflation period during the 1999 Asian financial crisis.
Acting Head of BPS, Amalia Adininggar Widyasanti, announced during a press conference in Jakarta on Tuesday, October 1, that Indonesia’s economy experienced a month-to-month (mtm) deflation of 0.12% in September 2024. The Consumer Price Index decreased from 106.06 in August to 105.93 in September.
Deflation in 2024 began in May with a 0.03% decline, followed by 0.08% in June, 0.18% in July, and 0.03% in August. The deeper deflation in September highlights the worsening trend, as deflation has now persisted for five straight months.
On a year-on-year (yoy) basis, Indonesia still recorded inflation of 1.84%, though this was down from 2.12% in the previous period. Meanwhile, year-to-date (ytd) inflation stood at 0.74%. Despite annual inflation, the consistent monthly deflation is having a notable impact on the broader economy.
This ongoing deflation in 2024 is reminiscent of Indonesia’s experience during the 1998-1999 Asian financial crisis, where the country saw seven consecutive months of deflation. In 1999, the country recorded its longest deflation period from March to September.
Comparing the Causes of Deflation in 1999 and 2024
The Monetary crisis become the primary drive to 1999 deflation, which lasted for seven consecutive months. This deflation was triggered by a sharp drop in prices following the severe depreciation of the Indonesian Rupiah in 1998. At that time, Indonesia was grappling with the Asian financial crisis of 1998-1999, which led to a drastic fall in prices as market equilibrium slowly recovered.
The Decline in food prices has largely contribute to the deflation experienced for five months in 2024. The declining food prices, particularly in horticultural products, resulting from product oversupply. BPS reported that on a monthly basis, the largest contributor to the deflation was the food, beverage, and tobacco sector, which saw a deflation rate of 0.59%, contributing 0.17% to the overall deflation.
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Key commodities driving this trend included horticultural products such as red chilies, bird’s eye chilies, tomatoes, and poultry products such as chicken meat and eggs. This drop in food prices can also be attributed to lower production costs, which were reflected in the reduced consumer prices.
As September 2024 marked the fifth consecutive month of deflation, the deflation rate in September was deeper than in August 2024.
Will the 1999 Deflation Repeat Itself?
Stating from Liputan6 Indonesia, economist Nailul Huda of the Center of Economic and Law Studies (Celios) explained the current situation is less severe than the 1999 caused by the monetary crisis, although deflation can still have an impact on economic growth..
Nevertheless, Huda emphasized that both the government and economic authorities must remain vigilant. Strategic measures are needed to tackle the prolonged deflation, including policies aimed at boosting consumer purchasing power, encouraging consumption, and maintaining a balance between the supply and demand for food commodities.
By understanding the causes of the current consecutive month of deflation and how they differ from the 1998 financial crisis, Indonesia can manage the present deflation situation more effectively and avoid severe negative effects on its national growth trajectory.
(Raidi/Agung)
