Indonesia Records First Annual Deflation Since March 2020
JAKARTA, investortrust.id – Indonesia recorded its first annual deflation since March 2020, with the consumer price index, or CPI, falling 0.09% year-on-year in February 2025. The decline was largely driven by electricity discounts and falling food prices.
The deflationary trend extended into a second consecutive month, following a 0.48% month-on-month (mom) decline in February, after a 0.76% deflation in January.
"Deflation occurred due to a decline in the consumer price index in February 2025. Both on a calendar year basis and year-on-year, we also observed deflation," said Head of Statistics Indonesia (BPS) Amalia Adininggar Widyasanti at a press conference in Jakarta on Monday, March 3, 2025.
The latest figures show that Indonesia's CPI fell from 105.99 in January to 105.48 in February. On a year-to-date (ytd) basis, deflation stood at 1.24%. The February deflation, though significant, was less severe than January's. In contrast, December 2024 saw a 0.44% mom inflation.
Bank Indonesia (BI), the country’s central bank, is likely to closely monitor the deflationary trend after maintaining its benchmark interest rate in the previous month. While the central bank had kept its policy rate steady last month to support economic stability, a persistent deflation could prompt a reassessment of its monetary stance.
In its most recent statement, BI said it would to take a cautious approach, balancing the need for economic growth with financial stability, given global economic uncertainties and currency stability concerns.
Electricity Discounts Drive Deflation
The primary driver of February’s deflation was lower household electricity costs, which fell due to government tariff discounts. In an effort to mitigate the impact of a planned increase in the value-added tax (VAT) from 11% to 12% starting January 2025, the Indonesian government implemented a 50% discount on electricity tariffs for low-income households. This measure, effective during January and February 2025, aimed to support consumer purchasing power amid rising living costs.
The housing, water, electricity, and household fuel category posted the largest deflation among all expenditure groups, declining by 3.59% mom and contributing 0.52 percentage points to the overall deflation rate.
"Electricity tariff discounts had the biggest impact, contributing 0.67 percentage points to deflation," Amalia explained.
Additionally, volatile food prices also played a role in deflation. The price of broiler chicken declined, contributing 0.06 percentage points to overall deflation. Other food items such as shallots and red chilies contributed 0.05 and 0.04 percentage points, respectively, while cayenne peppers added 0.02 percentage points.
Inflationary Pressures Remain in Certain Sectors
Despite the overall deflationary trend, certain commodities saw price increases, creating inflationary pressure. Notably, higher piped water rates contributed 0.13 percentage points to inflation. Jewelry gold prices and fuel price adjustments also added 0.08 and 0.03 percentage points, respectively.
"While we are seeing overall deflation, some sectors are still experiencing price increases," Amalia said.
Government-Regulated Prices and Core Inflation
Breaking down inflation by component, administered prices were the main source of deflation, dropping 2.65% mom and contributing 0.48 percentage points to the overall rate.
Meanwhile, core inflation—which excludes volatile food and administered prices—remained positive at 0.25% mom, contributing 0.16 percentage points to inflation. The main drivers of core inflation included gold jewelry, instant coffee, and automobiles. On an annual basis, core inflation stood at 2.48% yoy, while year-to-date core inflation reached 0.55%.
Volatile food prices also recorded deflation, falling 0.93% mom and contributing 0.16 percentage points to overall deflation. Key commodities driving this included broiler chicken, shallots, red chilies, cayenne peppers, tomatoes, and chicken eggs.
West Papua Sees Deepest Deflation
Deflation was recorded across 33 of Indonesia’s 38 provinces, while five provinces saw inflation. West Papua experienced the deepest deflation at 1.41% mom, while Papua Pegunungan recorded the highest inflation at 2.76% mom.
Indonesia's first annual deflation in nearly five years highlights the impact of government intervention on prices, particularly through electricity subsidies. Moving forward, inflationary trends will depend on global commodity prices, domestic consumption patterns, and further government policy adjustments.