Indonesians grapple with rising inflation

A fruit vendor hands over her customer's order at a traditional market in Jakarta on April 23, 2022.

The week-long Eid al-Fitr holiday has brought bittersweet opportunity to Indonesia-based baker Dewi Indriana. While she was grateful for increased sales as her Muslim-majority nation celebrated the end of the fasting month of Ramadan, Dewi was also worried about the rising prices of food ingredients like cooking oil and flour.

She is aware that the Russia-Ukraine conflict has crimped supply and pushed up commodity prices, and frets over the difficult decisions that lie ahead as she seeks to keep her business afloat.

“I have to be (careful) when increasing the prices of some products. (If the prices are too high), the buyers will not come in,” Dewi told China Daily.

The rapid rise in food prices in the past few months has pushed Indonesia’s inflation rate to a two-year high of 2.64 percent in March. The higher price of cooking oil is a topic of much debate in the country as Indonesia is the world’s largest producer of palm oil

The rapid rise in food prices in the past few months has pushed Indonesia’s inflation rate to a two-year high of 2.64 percent in March. The higher price of cooking oil is a topic of much debate in the country as Indonesia is the world’s largest producer of palm oil. By end-March, the price of cooking oil soared to a record 23,900 rupiah ($1.70) per kilogram.  

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On April 27, Indonesian President Joko Widodo banned the export of palm oil to ensure domestic supply and cap the rise in prices. But analysts said the move will not influence price movements over the long term.       

Nicholas Mapa, senior economist at Dutch investment bank ING, said while the palm oil export ban may temporarily limit food inflation, “it may not be enough to keep price pressure at bay much longer”.

“(The US Federal Reserve’s) rate hikes and global commodity price spikes will likely still feed through to (Indonesia’s) domestic inflation,” Mapa told China Daily.

Global credit rating agency Fitch expects the export ban to be “short-lived”, as a prolonged ban could hurt Indonesian palm oil producers’ profitability and the livelihood of millions of workers.

“We think the export ban is unlikely to extend beyond a month or so,” Fitch Ratings said, noting that crude palm oil prices are likely to fall sharply as Indonesia’s domestic market will be unable to absorb the increased supply, amid strain on the country’s storage infrastructure.

Indonesia’s palm oil export ban has also sent ripples across the global vegetable oil market. Vegetable oil prices have been rising in the past few months following supply disruption from Russia and Ukraine — both key exporters of sunflower oil. The World Food Programme, or WFP, has noted that Indonesia’s palm oil export ban “has sparked international trade concerns” as importers worldwide seek out substitutes.

The rising price of cooking oil is just one of the main reasons behind Indonesia’s food inflation. Another key concern is the global rise in wheat prices – as Indonesia is among the world’s biggest importers of wheat, with annual imports topping 10 million tons. According to the WFP, which was established by the United Nations in 1961 to help alleviate world hunger, the price of wheat flour in Indonesia rose by 8.3 percent year-on-year in March.

Rico, a food seller in Jakarta, said he has to increase the price of a bowl of noodle soup by 1,000 rupiah because the price of noodles has increased. He said he cannot increase his prices further as he is competing with 15 other food vendors around his area.

While rice remains a staple in Southeast Asia’s biggest economy, millions of Indonesians also consume wheat-based products like bread, noodles and crackers.  A total of 13 billion packets of instant noodles are sold each year in Indonesia, equivalent to 15 percent of global instant noodle consumption, according to the Australia Export Grains Innovation Center.

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Indonesia imports most of its wheat supply from Australia. But the conflict between Russia and Ukraine has limited the export of Ukrainian and Russian wheat, crimping global supply and boosting prices. The Food and Agricultural Organization’s Cereal Price Index averaged 170.1 points in March, up 17.1 percent from February and marking its highest level since 1990. FAO said the sharp rise in prices is “largely driven by conflict-related export disruptions”.

The WFP said that Indonesia’s dependence on wheat imports is likely to influence the domestic supply and prices. It will also put an additional burden on small and medium enterprises that supply more than 60 percent of wheat flour consumed in the local market,

The UN agency said adequate wheat stocks may not affect prices significantly over the short term.  But over the long term, it proposed that Indonesia diversify the sources of its wheat imports to stabilize local supply of flour. Indonesia sources about 40 percent of its wheat imports from Australia, but the WFP said the Southeast Asian nation needs to find alternative import countries to replace wheat supply from Ukraine.


Leonardus Jegho in Jakarta contributed to this story.