Definition to Inflation - Bank Sentral Republik Indonesia
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February 25, 2020

Introduction to Inflation

Definition to Inflation    |    Disaggregation of Inflation   |   Important of Price Stability

Stable inflation is a prerequisite for the sustainable economic growth that will ultimately bring benefits through improvements in public welfare. The importance of inflation control is based on the reasoning that high, unstable inflation will have negative impact on the social and economic condition of the people.

First, high inflation will lead to steady erosion of people's real incomes and deterioration in living standards so that all members of society and especially the poor sink into deeper poverty.

Second, unstable inflation will create uncertainty for economic actors, affecting their ability to make decisions. Empirical experience shows that unstable inflation will create added difficulty for the public in their decisions regarding consumption, investment and production, which in turn will hamper economic growth.

Third, a higher level of domestic inflation in comparison to neighbouring countries will make domestic interest rates uncompetitive, which may lead to pressure on the rupiah exchange rate.


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