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Indonesia's consumer price index (CPI) dropped 0.09% year-on-year in February, marking the first annual deflation since March 2000. The decline, well below market expectations of 0.60% inflation, follows a government decision to cut electricity tariffs by 50% for some consumers in January and February.
January’s inflation rate stood at 0.76%, making this the second consecutive month inflation has remained below Bank Indonesia’s target range of 1.5% to 3.5%. Lower food prices, including rice, tomatoes, and red chilies—boosted by a recovery in production after last year’s drought—also contributed to deflation.
Statistics Indonesia Chief Amalia Adininggar Widyasanti clarified that the deflation was not due to weak consumer demand but rather the electricity discounts. Core inflation, which excludes government-regulated and volatile food prices, rose to 2.48% in February from 2.36% in January, slightly above analysts’ expectations.
With the expiration of the electricity tariff discount, the CPI is expected to rise in March, though inflation may remain low due to upcoming government initiatives, including discounted airfares and toll fees during the Ramadan holiday. Economist Hosianna Situmorang from Bank Danamon projects GDP growth at 5.1% to 5.2% in 2025, aligning with the government’s 5.2% target. In 2024, the economy expanded by 5.03%.
With inflation under control, Bank Indonesia may consider further interest rate cuts to support economic growth. However, global market volatility remains a key factor influencing the central bank’s monetary policy decisions.
