Structural Inflation and the Cost of Civilisation: Re-reading the Energy Transition
In 2007, through my research on economic recovery post the 1997-1998 crisis, I posited that the economic stability we pride ourselves on is often illusory, built on short-term policies that delay structural adjustments. Nearly two decades later, that thesis finds renewed relevance. The inflation we face today is no longer merely a cyclical fluctuation but a manifestation of deeper and permanent structural changes.
In a global perspective, Alfred H Peterson in Inflation 2.0: The New Era of Currency Devaluation and How Investors Can Respond Effectively (2026) asserts that modern inflation has transformed from a monetary phenomenon into a structural consequence. This is triggered by a combination of ballooning debt, fragmentation of globalisation, and the energy transition. Thus, inflation is no longer a temporary disruption but an inherent part of contemporary economic architecture.
At this juncture, inflation needs to be reinterpreted, not merely as a price issue, but as a reflection of civilisational choices.
In my writings in Media Indonesia (2026) and various other media, I have argued that our main problem is not crisis, but resistance to change. We tend to dampen short-term volatility but avoid structural reforms. We choose stability today, while implicitly postponing costs that become larger in the future.
The Energy Transition Unveils a Paradox
Normatively, the direction of our policies is not wrong. The world is moving towards a low-carbon economy, and Indonesia is striving to take a position through nickel downstreaming, electric vehicle development, and expansion of new renewable energy. However, as reminded in Inflation 2.0, energy transformation is inherently inflationary in its initial phase, as it demands massive investments while increasing energy costs before efficiency is achieved.
From here emerges what we can call structural inflation, where price increases are not merely due to market disruptions, but logical consequences of the economic transformation process itself. This paradox is clearly reflected in our fiscal structure. The 2023 state budget allocated over Rp500 trillion for energy subsidies and compensations. In 2024, it remained around Rp339 trillion. The 2025 realisation is still high at around Rp307.93 trillion, and in the 2026 state budget, it even increases to Rp318.88 trillion.
All these figures not only indicate the magnitude of the fiscal burden but reveal something more fundamental: the price stability we enjoy is not the result of structural efficiency, but of continuous fiscal engineering. We are not eliminating inflation. We are merely postponing it.
However, economic history teaches one simple thing: there is no postponement without consequences. As noted by Peterson, in a structural inflation regime, policy interventions intended to suppress short-term pressures can actually strengthen long-term inflationary pressures through price distortions and fiscal expansion.
When energy subsidies are reduced, as in the 2022 fuel price adjustment, an inflationary response occurs almost instantly. This confirms that energy is not merely a commodity, but the foundation of the entire economic price structure. Every change in this sector has widespread and systemic ripple effects.
The Energy Transition Must Be Read Honestly
Therefore, the energy transition cannot be understood merely technocratically. It must be read honestly as a structural transformation that brings upfront costs and backend benefits.
This is what I call the cost of civilisation, the price a nation must pay when deciding to shift towards a more sustainable economic system.
The problem is, we are not yet fully prepared to internalise those costs. Our policies are still trapped in dualism. On one hand, pushing for accelerated energy transition. On the other, maintaining price stability through large subsidies. This tension creates structural inconsistency that ultimately generates latent yet persistent inflationary pressures.
This phenomenon is not exclusive to Indonesia. All ASEAN countries face a similar dilemma, demands for rapid transition amid fiscal limitations and infrastructure readiness. In this context, as emphasised in Inflation 2.0, inflation is increasingly determined by policy design and economic structure, not merely market mechanisms.
If traced back, this situation is not a surprise, but a consequence of delaying reforms for too long. Subsidies that were originally temporary have turned into structural dependencies. When global changes come faster, we are forced to make adjustments in a narrow timeframe, and certainly at greater cost.
Structural Inflation Can Be Managed Rationally
Managing structural inflation requires a change in perspective. First, we must acknowledge that not all inflation is negative. As emphasised in Inflation 2.0, the main focus is no longer on nominal inflation, but on how to preserve real value and purchasing power in the long term.
Second, energy subsidy reforms must be carried out gradually but consistently. Subsidies can no longer be a permanent instrument, but must be directed more precisely to protect vulnerable groups without hindering structural transformation.
Third, the energy transition must be integrated with national industrialisation strategies. Without integration, Indonesia will only become a consumer in the global green economy, not a producer that gains added value.
In the end, the inflation we face today is a reflection of our choices as a nation. We are moving from illusory stability towards real transformation. And every transformation, in any economic history, always has a price.
The question is not whether we can avoid the price, but whether we are mature enough to pay it.