Indonesia Records First Annual Deflation Since 2000 – What’s Behind It?

In February 2025, Indonesia experienced an annual deflation of 0.09%, marking the first occurrence of deflation since March 2000.

Insights from BPS Chief Amalia Adininggar Widyasanti

During a press conference, Amalia Adininggar Widyasanti, the head of BPS, explained that this deflation was primarily due to the 50% discount on electricity tariffs for customers with capacities up to 2,200 VA in January and February 2025. This policy led to a 9.02% year-on-year deflation in the administered prices component, contributing 1.77% to the overall deflation rate.

However, Amalia emphasized that this deflation does not indicate weakened consumer purchasing power. This is evidenced by the core inflation rate remaining positive at 2.48% YoY, suggesting that consumer demand remained stable.

Comparison with March 2000 Deflation

The last recorded annual deflation in Indonesia occurred in March 2000, primarily driven by a drop in food prices. In contrast, the February 2025 deflation was more influenced by energy factors, particularly electricity.

Despite the overall deflation, certain food commodities such as red chili peppers, garlic, water spinach, and shallots still experienced annual inflation.

Monthly Deflation Observations

On a month-to-month basis, Indonesia recorded a 0.48% deflation in February 2025, with the Consumer Price Index (CPI) decreasing from 105.99 in January to 105.48 in February. The largest price decline came from the housing, water, electricity, and household fuel expenditure group.

This deflation presents an opportunity for policymakers and businesses to evaluate future economic strategies. Will this impact investment opportunities? How will Bank Indonesia respond in its monetary policy decisions? Let’s wait and see!