BI Warns of Potential Price Surge in Chilli and Rice Amid Drought and Middle East Conflict

Jakarta — Bank Indonesia (BI) has cautioned about the potential for rising prices and inflation stemming from the Middle East conflict and the approaching extended dry season in Indonesia.

BI Deputy Governor Aida S. Budiman explained that the conflict in the Middle East, triggered by attacks from the United States and Israel against Iran, could prompt inflationary pressures in Indonesia through disruption of global supply chains and upward pressure on commodity prices, particularly in the energy sector.

“This will certainly have an impact on inflation, especially through supply-side channels and rising commodity prices. This is something we need to monitor,” Aida said during a press conference on the results of BI’s monetary policy board meeting held online on Tuesday (17 March 2026).

Regarding the prolonged dry season, Aida noted that price pressures would affect several horticultural commodities, including chilli peppers, maize and rice.

“According to the Meteorological, Climatological and Geophysical Agency (BMKG), there are indications of a drier dry season arriving earlier than usual. This requires our attention, particularly for horticultural commodities such as chilli peppers, maize and rice,” Aida said.

Previously, BI had noted that global inflationary pressure had increased from 3.8 per cent to 4.1 per cent as a result of the Middle East conflict, thereby narrowing the scope for global monetary policy easing, including the potential further delay in Federal Funds Rate (FFR) reductions.

Domestically, Indonesia’s latest inflation figure for February 2026 remained relatively elevated at 4.76 per cent year-on-year. This was particularly influenced by temporary base effects from the government’s policy of a 50 per cent discount on household electricity tariffs in January and February 2025.

The inflationary pressure was driven by core inflation of 2.63 per cent year-on-year, spurred by rising gold prices, and volatile food group inflation of 4.64 per cent year-on-year, coinciding with increased demand during Chinese New Year celebrations and the Islamic month of Ramadan 1447 Hijri, as well as supply constraints due to adverse weather conditions.