Jakarta, Indonesia Sentinel — Entrepreneurs in Indonesia are growing increasingly concerned about the impact of country’s deflation, which has persisted for the past five consecutive months. Many fear that the deflation signals a weakening of consumer purchasing power.
Shinta Kamdani, Chairperson of the Indonesian Employers Association (Apindo), emphasized that deflation should not be viewed in isolation, but rather in connection with its impact on consumer demand.
“I don’t think we can look at deflation just as it is. It’s clear, as mentioned earlier, that government intervention has played a role, especially with the volatility in food prices being the main issue,” Shinta stated during an interview at the Indonesian Chamber of Commerce and Industry (Kadin) headquarters in South Jakarta on Wednesday, October 2.
“Our main concern is that this is all affecting purchasing power, which is the real key here,” she added.
Shinta pointed out that this trend is also reflected in Indonesia’s Manufacturing Purchasing Managers’ Index (PMI), which remained in contraction territory in August 2024. According to a report from S&P Global, Indonesia’s manufacturing PMI rose slightly to 49.2 in September, up from 48.9 in August 2024.
Given these circumstances, Shinta believes that the performance of Indonesia’s manufacturing sector is heavily dependent on the domestic market, where demand far outweighs that from international markets.
“We appreciate what the government has done to stimulate and develop domestic industries, but clearly, demand plays a crucial role in shaping the performance of our manufacturing sector right now,” she explained.
Furthermore, Shinta noted that one of the key challenges ahead is to enhance industrialization and downstream processing across sectors. She stressed that Indonesia must also improve its competitiveness in operational costs, as labor, energy, and logistics expenses in the country are among the highest in Southeast Asia.
“We need to figure out how to get our products into the global supply chain. That’s our homework, we must improve the productivity of existing products so they can enter global markets,” Shinta concluded.
Impact of Deflation
The Indonesian Central Statistics Agency (BPS) reported a 0.12% deflation on a monthly basis in September 2024, marking the fifth consecutive month of deflation this year. Acting BPS Head Amalia Adininggar Widyasanti attributed the deflation to a decline in prices across various goods.
According to CNBC, Economist said that deflation is often considered more severe than inflation because it is harder to control. During deflationary periods, the prices of consumer goods and services are not the only ones that fall.
For entrepreneurs, deflation can signify a decrease in the value of their investments. From the perspective of business owners or investors, a deflationary environment may lead to expectations of further price drops, reducing anticipated returns on new investments.
Indonesia Fifth Consecutive Month of Deflation, Recurrence of 1999 Economic Crisis?
If deflation persists for an extended period, corporate profits begin to erode. Economic conditions, such as oversupply, can force companies to sell their products at progressively lower prices. As a result, businesses may be forced to reduce production, cut operational costs, lower employee wages, lay off workers, or even shut down production facilities.
Should this scenario unfold, unemployment would rise, the economy would stagnate, and people would hesitate to spend, uncertain about their financial future. Thus, the impact of consecutive deflations can be detrimental to both consumers, workers, businesses, and investors.
(Raidi/Agung)
