Electricity Discounts Trigger Deflation in Early 2025

JAKARTA, KOMPAS - The government's policy of electricity and airline ticket discounts has contributed to the decline in the Consumer Price Index (CPI) at the beginning of 2025. Discounts on government-regulated prices, as calculated by the Central Statistics Agency (BPS), have helped suppress inflation in the food, beverage, and tobacco groups. Acting Head of the Central Statistics Agency (BPS) Amalia Adininggar Widyasanti stated that the Consumer Price Index (CPI) experienced a monthly deflation of 0.76 percent from 106.80 in December 2024 to 105.99 in January 2025. Annually, the change in CPI in January 2025 compared to January 2024 was 0.76 percent, the lowest in the last 25 years. The largest contributor to monthly deflation, Amalia mentioned, came from the housing, water, electricity, and household fuel group at -9.16 percent, with a deflation contribution of 1.44 percent. This was mostly contributed by electricity tariffs with a deflation rate of 32.03 percent. "This deflation occurred due to a 50 percent discount for customers up to 2,200 VA (volt ampere) in January 2025," said Amalia in a monthly inflation press conference held in a hybrid manner, Monday (3/2/2025).

He explained that their policy of electricity tariff discounts is recorded in the inflation calculation according to the Consumer Price Index Manual guidelines applied globally. Although the government only enforces the discount until the end of February 2025, the policy can be considered as long as the quality of goods and services received remains the same and the discount can be obtained by many people.

In addition to electricity prices, other commodities that also contributed to deflation include tomatoes with a deflation of 0.03 percent, cucumbers, train fares, and air transportation fares, each contributing 0.01 percent to deflation. Meanwhile, the contributors to monthly inflation in January 2025 came from the food, beverages, and tobacco group at 1.94 percent, with a contribution of 0.56 percent. The inflation rate of this group is the highest in the last five years. "In general, every January, from 2021 to 2024, the inflation rate of this group was lower compared to December. However, in January 2025, the inflation of this group was higher than in December 2024, with contributors to inflation being red chili, bird's eye chili, and cooking oil," said Amalia. BPS recorded that the three commodities mentioned as contributors to inflation in January 2025 each contributed 0.19 percent, 0.17 percent, and 0.03 percent to inflation. Additionally, other commodities contributing to inflation include jewelry gold prices with a contribution of 0.36 percent. This trend was influenced by the world gold price, which reached an all-time high of 2,817.5 US dollars per troy ounce in January. Non-subsidized fuel commodities, such as Pertamax, Pertamax Turbo, Dexlite, and Pertamina Dex, also contributed to inflation due to price increases.

Danamon Bank economist Hosianna Evalita Situmorang opines that the seasonal demand in the food sector, which caused inflation from December 2024 continuing into January 2025, indicates potential economic expansion. "Although the deflationary impact of electricity discounts is quite significant, inflation is expected to remain within the government's target of 2.5 plus or minus 1 percent," she said when contacted today. The electricity discount policy, which continues into this month, she continued, can boost the purchasing power of the community in other primary needs. This is also a fitting momentum before entering the Ramadan and Eid seasons, which generally cause significant price inflation. "We see that the government wants to boost purchasing power. But, at the same time, inflation remains under control," she said.

Meanwhile, he warned of the potential for inflation on imported products. This measures the movement of the rupiah exchange rate which is increasingly weakening, especially in the momentum of tariffs imposed by United States President Donald Trump on Canada (25 percent), Mexico (25 percent), and China (10 percent). This policy increases trade tensions and causes the rupiah to weaken to beyond 16,400 per US dollar as of Monday (3/1). "Inflationary pressures may increase because the cost of importing basic goods rises," he said. In this situation, Hosianna predicts that Bank Indonesia (BI) is unlikely to intervene significantly with a focus on the rupiah exchange rate. BI is expected to maintain the benchmark interest rate at 5.75 percent in the meeting on February 18-19, in line with the stance anticipated by the US Central Bank, the Federal Reserve.