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Unveiling Stubborn Inflation in Indonesia

Author

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  • Yoga Affandi

Abstract

The average inflation rate in Indonesia is one of the highest in the region. This high level of inflation raises the question whether there is a level of stubborn inflation in shaping the inflation process. It also indicates the presence of more fundamental problems, that might be related to the supply side of the economy. This paper investigates the inflation using both the cost push as well as demand pull approaches. We find evidence that four inputs: wages, transport costs, food and import prices play a significant role in determining long run inflation. We show that the price level is linearly homogeneous in all input costs. These inputs have contributed to the dynamic short run inflation. The demand side is also important. Base money keeps its key role in influencing the core inflation. A long run price homogeneity is found between nominal money and prices.Journal: Economics and Finance in Indonesia

Suggested Citation

  • Yoga Affandi, 2011. "Unveiling Stubborn Inflation in Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 59, pages 47-70, April.
    • Handle: RePEc:lpe:efijnl:201103
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    Citations

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    Cited by:

    1. Harry Aginta & Masakazu Someya, 2022. "Regional economic structure and heterogeneous effects of monetary policy: evidence from Indonesian provinces," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-25, December.
    2. Harry Aginta, 2022. "Spatiotemporal analysis of regional inflation in an emerging country: The case of Indonesia," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(3), pages 667-688, June.
    3. Aginta, Harry, 2023. "Revisiting the Phillips curve for Indonesia: What can we learn from regional data?," Journal of Asian Economics, Elsevier, vol. 85(C).
    4. Harry Aginta, 2021. "Spatial dynamics of consumer price in Indonesia: convergence clubs and conditioning factors," Asia-Pacific Journal of Regional Science, Springer, vol. 5(2), pages 427-451, June.
    5. Harry Aginta, 2020. "Does the law of one price hold in 82 Indonesian cities? Evidence from club convergence approach," Economics Bulletin, AccessEcon, vol. 40(4), pages 2844-2858.

    More about this item

    Keywords

    Central Banking; Monetary Polic; Indonesia;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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