Introduction to Inflation
Definition to Inflation I Disaggregation of Inflation I Important of Price Stability
In simple terms, inflation is understood as a persistent, ongoing rise across a broad spectrum of prices. An increase in prices for one or two goods alone cannot be described as inflation unless that increase spreads to (or leads to escalating prices for) other goods. The reverse of inflation is deflation.
The indicator commonly used to measure the level of inflation is the Consumer Price Index (CPI). Changes in the CPI over time are indicative of price movements for packages of goods and services consumed by the public. Since July 2008, the packages of goods and services in the CPI basket have been based on the 2007 Cost of Living Survey conducted by the Statistics Indonesia (BPS). Following this, BPS monitors price movements for these goods and services in selected cities and towns each month, using information from traditional markets and modern retail outlets on specific categories of goods and services in each location.
Other inflation indicators used in international best practice include:
Wholesale Price Index.
The wholesale price for a commodity is the price of transactions taking place between the first wholesaler and the next largest trader for large quantities on the first market for a commodity. [More detailed explanations of the Wholesale Price Index can be found at the Statistics Indonesia (BPS) website: http://dds.bps.go.id/eng/
The Gross Domestic Product (GDP) Deflator illustrates the measurement of price levels for the final goods and services produced within an economy. The GDP Deflator is derived by dividing GDP based on nominal prices by GDP based on constant prices.
Categorisation of Inflation
The inflation measured in the CPI in Indonesia is divided into 7 expenditure categories (based on the Classification of Individual Consumption by Purpose - COICOP). These are:
Processed Foods, Beverages and Tobacco
Education and Sports and
Transportation and Communications.