Inflation is often understood simply as the rise in prices of goods\nand services felt by the public in daily life. However, from a modern\nmonetary policy perspective, inflation is actually a key indicator\nreflecting a country\u2019s economic stability. Therefore, when Bank\nIndonesia announced that the July 2026 Consumer Price Index remained\nwithin the target range of 2.5\u00b11 per cent, this achievement deserves\nmore attention than just a monthly statistical update.<\/p>\n
Based on data from the Central Statistics Agency, the July 2026 CPI\nexperienced a monthly deflation of 0.14 per cent, while annual inflation\nwas recorded at 2.88 per cent, lower than the June 2026 realisation of\n3.34 per cent. Amidst persistent global warming due to geopolitical\ndynamics and reflections of global commodity prices, this achievement\ndemonstrates that price stability in Indonesia remains well\nmaintained.<\/p>\n
This success did not happen by chance. Inflation that stays within\nthe target is the result of consistent Bank Indonesia policy implemented\nthrough the Inflation Targeting Framework, as well as strong synergy\nbetween Bank Indonesia and the Government via the Central and Regional\nInflation Control Teams. In this context, controlled inflation is not\nmerely a policy objective, but a reflection of the monetary authority\u2019s\nmaintained credibility in guiding the expectations of the public and\neconomic actors.<\/p>\n
Since the implementation of the Inflation Targeting Framework, Bank\nIndonesia has placed price stability as the primary objective of\nmonetary policy. Within this framework, the success of a policy is\nmeasured not only by the current level of inflation, but also by the\ncentral bank\u2019s ability to keep public inflation expectations aligned\nwith the established target. In practice, inflation expectations play a\nvery important role. When businesses are confident that inflation will\nremain under control, they will not make excessive price adjustments.\nSimilarly, the public will not be driven to make excessive purchases out\nof fear that prices will surge in the future. This condition creates a\nmore sustainable economic stability.<\/p>\n
The July 2026 inflation developments show that this mechanism is\nworking well. Core inflation, which is an indicator of fundamental price\npressures, was recorded at 2.76 per cent year-on-year, stable compared\nto the previous month. On a monthly basis, core inflation was only 0.14\nper cent, lower than the 0.23 per cent recorded in June 2026. The\nstability of core inflation sends an important message that inflationary\npressures originating from the demand side remain well maintained. This\ncondition also shows that public and business inflation expectations\nremain anchored despite high global commodity prices. Within the\nInflation Targeting Framework, this achievement is an important\nindicator that the credibility of Bank Indonesia\u2019s monetary policy\nremains strong.<\/p>\n
This credibility is the most valuable asset for a central bank. When\nthe public trusts that Bank Indonesia is capable of keeping inflation on\ntarget, the effectiveness of monetary policy increases. This trust\nultimately creates the certainty needed by the business world,\ninvestors, and the public to carry out economic activities more\nproductively.<\/p>\n
Although monetary policy plays a very important role, Indonesia\u2019s\nexperience shows that inflation cannot be controlled solely through\ninterest rate instruments. One characteristic of inflation in Indonesia\nis the significant influence of volatile food prices on overall price\nmovements. Data for July 2026 shows that the volatile food group\nexperienced a monthly deflation of 1.68 per cent, a reversal from the\nprevious month\u2019s inflation of 0.14 per cent. This deflation was mainly\ninfluenced by the decline in prices of shallots, cayenne pepper, and red\nchillies, driven by increased supply from production centres. On an\nannual basis, volatile food inflation dropped significantly from 5.58\nper cent to 2.52 per cent.<\/p>\n
These developments demonstrate the effectiveness of the synergy\nbetween Bank Indonesia, the Central Government, Regional Governments,\nand the Central and Regional Inflation Control Teams in maintaining\nsupply and price stability. The implementation of the National Food\nSecurity Programme and the Movement for Inflation Control and Food\nWelfare also contributed to maintaining the balance between supply and\ndemand for strategic food commodities. Meanwhile, the administered price\ngroup still recorded inflation of 3.58 per cent year-on-year, slightly\nhigher than the previous month\u2019s 3.42 per cent. This inflation was\ninfluenced by the adjustment of non-subsidised fuel prices. This\ndevelopment shows that price pressures from the energy sector still need\nto be closely monitored, especially if global turmoil triggers another\nincrease in world energy prices.<\/p>\n
Overall, however, the July 2026 inflation structure shows a healthy\ncondition. Core inflation is stable, food inflation is declining, and\noverall inflation remains within the established target. This\ncombination provides greater room for the economy to continue growing\nwithout being overshadowed by the risk of excessive price increases. The\nsuccess in maintaining inflation at 2.88 per cent not only shows that\nprice stability is well preserved, but also serves as evidence that the\nInflation Targeting Framework implemented by Bank Indonesia is operating\neffectively.<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/controlled-inflation-and-monetary-policy-credibility-1785941518", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }