The Asian Development Bank (ADB) and the World Bank are both predicting that the Indonesia's 2015 inflation rate would be no less than 6 percent.
The ADB's outlook report, released on Dec. 3, states that inflation would touch 6.4 percent this year, while the World Bank's outlook report for 2015 put the rate at 6.3 percent.
“The main factor of the high inflation is food prices,” World Bank economist Ndiame Diop said recently, adding that Indonesia is seeing relatively unstable food prices.
According to the data, although the growth of Indonesia's gross domestic product (GDP) is expected to be only 4.7 percent this year, which is relatively low compared with neighboring Vietnam at 6.5 percent and the Philippines at 5.9 percent, the Indonesian inflation rate is much higher than that of those two ASEAN countries.
Inflation in Vietnam and Philippines is low: 0.9 percent and 1.6 percent respectively, according to the 2015 outlook by ADB.
Diop said there are difficulties in handling food prices. The first is because Indonesian farm productivity is low because of the use of low technology and new crop development is slow compared to that in other countries and the second is because Indonesia cannot immediately allow more imports if there is a shortage in supply.
“The more open the country is to food imports, the more stable food prices will be,” he asserted, adding that another factor is the cost of transporting the food.
The cost of transporting one cow from Nusa Tenggara to the capital of Jakarta is about Rp1.8 million (US$128). President Jokowi claimed that with the development of marine transportation routes the cost will be reduced to Rp 350,000 per cow.
"Indonesian is a big country, to transport food is really costly; we could not compare with small countries like Vietnam and the Philippines," Creco Consulting economist Raden Pardede said, adding that a cost reduction is good, but the effect will not be seen in the short time.
He added that while core inflation is affected more by global conditions, the administered price is a "regulated price" that could be controlled, such as when the government manages the price of gas.
“Then actually the key to reduce inflation is in the government," Pardede said.
Rodrigo A. Chaves, World Bank Indonesia's country director, said that food price inflation would have a higher impact on the poor since most of their expenditures go toward eating.
