Wednesday, 19 August 2015


The Government had asked the people not to panick as prices of essential need soared high. The Ministry of Trade stated they had set up a new strategy to stabilize prices toward Ramadhan and Idul Fitri, which was believed to be more effective instead of increasing stock as done before,

The new strategy was Presidential Regulation on Control over Essential Need. The legal instrument was mandate of law No 7/2014 on trading. There would be more authority given to the Government by this Perpres, not just to protect consumers but also farmers.

The Government policy was rated as strategic in controlling inflation because inflation had increased production cost and lessened competitiveness in Asia and the world. The Perpres was expected to be released soon, to control prices of essential need especially toward Idul Fitri.

As always, prices of some essential need soared up three weeks before the fasting month, the most visible being prices of eggs and onions; the price increase caused illegally imported onions to circulate in some markets in Jakarta.

If the price Controlling Regulation were put in effect, the Government could stipulate the reasonable price of a certain product. On the consumer’s side, very frequently sellers increased price high up reasoning that supply was low. On the farmer’s side very frequently they sell products short reasoning that there was too much import. Soon the Ministry of Trade would use their authority to stipulate a proper price.

Besides the Ministry of Trade would be given the authority to manage stock of goods and distribution of essential need. There was suspicion that some traders were stockpiling goods to keep supply low. Other authority to be strengthened by the Perpres would be the right to stipulate export of essential needs.

The Minister of trade would only issue import permit if the price of a certain commodity was be coming extremely high. This was done to anticipate a situation where distributors piled up goods but importing was only last resort.

Based on certain points in the Perpres, the Government would have enough legal ground to terrene the market. The way it had been the Government had been powerless as they were not armed with the instrument to control as they were not armed with the instrument to control prices. With Perpres unhealthy trading practices could be prevented.

However, increasing prices of some essential need toward Idul Fitri must be controlled. For that matter, stock of some essential need must be sufficient till end of Lebaran. That stock of rice among traders was still sufficient till May and June in 165 markets was good news.

Beside trader’s stock of rice held by BULOG. Not to mention stock of unhusked rice (gabah) in rice mills all over Indonesia. Indicatively 72000 rice mills still had 5.4 million tons of rice. As with sugar, the stock was still plentiful in distributors or retailers, there was stock in 62 sugar outlets, 344 distributors and some retailers. Today stock of consumed sugar was still posted at 286 thousand tons. Soon there would be milling time so there would be an addition of 1,4 million tons which was enough to meet Ramdhan need.

In a condition of surplus, little was the chance that price of sugar would increase. In case of meat, the Government has issued permit for importing of calves and consumed cow sometime ago. Still in case of meat, chili and eggs they were still prone to price increase.

Businesspeople fully supported Government’s plan to issue Perpres Regulation on price Controlling of essential needs. They reckoned there were more stock of food today being in the hands of traders than the Government. Domination by traders made it hard for the Government to make intervention.

It was expected that the Presidential Regulation would be put in effect before Ramadhan fasting month to tackle price upjump when necessary. With the power given to the Ministry of Trade of intervene, businessplayers expected there would be no more price increase of essentials gods but the sanction be harsh on stubborn price players.

Sighn of rising inflation was already visible since May: inflation posted at 0.50% with increase of Consumer’s price index (IHK) of 119.50. Of 82 IHK cities, 81 cities posted inflation and 1 city posted inflation. Highest inflation was posted in Palu 2.24% with IHK 120.42 and the lowest was in Singkawang 0,03% with IHK index 119,28 while deflation was in Pangkalpinang 0.61% with IHK 118.06.

Inflation happened due to price increase as shown in increase of all expenditure group, i.e. food group 1.39%; food and beverages, cigarettes, and tobacco 0,50%; housing, water, electricity, gas, and fuel 0.20% clothing 0.23%; health category 0,34%, education recreation and transportation, communication, and financial services 0.20%.

Inflation of calendar year (January-May) 2015 was 0.42% and inflation level year after year (May 2015 against May 2014) amounting to 7.15% (y o y). Core component in May 2015 was showing inflation of 0.23%; inflation of core component of calendar year (January-May) 2015 1,73 and inflation in core component y o y (May 2015 – May 2014) was 5.04% (y o y).

In view of the above data, it right indeed if Perpres on price controlling was released before the fasting month as an act of anticipation. Increase of food prices during Ramadhan was a phenomenon that happened every year so the inflation was known as seasonal inflation. So the Government should step up anticipation in terms of supply or distribution.

In the end soaring prices of essential need would burden the low income group, so execution the Perpres was now really an urgency.

President Joko Widodo had given his instruction to monitor food prices to his cabinet ministers at the cabinet meeting. It was advisable for the President to pursue his ministers to seriously control inflation because it concerned purchasing power of the low income group.

Considering the graveness of inflation, BI had to ask Provincial Governments to prepare a budget for marketplace operations. Economic growth became meaningless if inflation turned out to control; therefore the Government strived to downpress prices of food which was the dominating factor of inflation. Import of food was no longer recommendable considering the chance in global climate.

Many factors were the cause of inflation, among others, oil price increase, electricity tariff, transportation tariff, and price of gas. The most influential was rise, chili, red onion, chicken meat and beef; these commodities should be closely watched. President Jokowi was taking further steps to suppress price of food. Firstly to restructure BULOG and widen their scope of mission, not just to manage rice but also to manage other food commodities. Secondly to set up auction markets in some locations. The idea was that farmers would be advantaged by price agreement with buyers. Price would not be determined by brokers, distributors or big traders but by auctions which were open and transparent.

Thirdly to encourage Governors to run marketplace operations because marketplace operations was not only BULOG’s task. The Provincial Government might flood the market with food when supply enhanced to ensure even distribution of food. Naturally an auction market could downsize inflation. All effort were believed to bring inflation down this year and next year to around 4% - 1%. (SS)

Business News - June 5, 2015

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