Inflation and BI Rate in 2024? (Part-2)

By: Dr. Mohamad Ikhsan Modjo (Financial Economic Specialist’s BINUS International Finance Program)

On the other hand, the inflation rate in November 2023 was recorded as a quite low increase, at an average of 3.80 percent (average year-on-year). Meanwhile, the GDP growth rate in the third quarter of 2023 was 5.01 percent. Thus, it can be said that there are no signs of serious inflationary pressure that one should be wary of. On the other hand, there are several reasons to doubt the accuracy of these two indicators to justify the continuously low inflation this year.

First, the last month of 2023 is the month where the non-volatile price is common. Inflation and price increases in the month after the school holiday often occur in previous years. So, it can be said that the low inflation rate in November is not an accurate measure of price control.

Second, last December, inflation pressure strengthened due to increased demand during the Christmas and New Year celebrations.

Third, related to the above, inflation pressure in December also occurred due to high government spending, both central and regional, which is concentrated at the end of the year. So far, until November 2023, only about 60-70 percent of the central and regional government budgets have been spent for the 2023 fiscal year.

Fourth, future inflation pressure will also strengthen due to the strong flow of foreign investment. So far, there are no signs that foreign capital flows will subside. On the contrary, initial data shows that there will be an increase in foreign capital flows this year, which is predicted to reach more than 20 billion US dollars compared to last year.