The Rupiah's Slump: Its Ripple Effects Squeeze the People's Pot
The rupiah has once again slumped. The exchange rate, which had been moving around Rp 17,400 per US dollar, is even said to be approaching the weakest point in modern Indonesian history.
For some people, that figure might just appear as a financial market statistic.
However, for the wider public, the rupiah’s weakening is actually an alarm slowly sounding from the household kitchen.
Because when the rupiah weakens, it’s not just the currency exchange rate that moves, but also the prices of daily necessities.
The ripple effects seep into transportation costs, logistics expenses, food prices, instalments, education costs, and family daily expenditures.
The rupiah’s weakening ultimately turns into tangible economic pressure.
Ironically, that pressure often comes slowly. It doesn’t feel noticeable in a day, but it erodes purchasing power bit by bit. And when the public starts to realise, the people’s pot has already been squeezed.
The current pressure on the rupiah is not entirely originating from within the country.
Geopolitical tensions in the Middle East, high interest rates from the Fed, the global strengthening of the US dollar, and the outflow of foreign capital from emerging countries are the main causes.
Bank Indonesia has even had to carry out massive interventions in the spot market, DNDF, and offshore NDF to maintain rupiah stability.
However, for small communities, the issue is no longer about monetary interventions or capital outflows. What they feel is the increasingly expensive cost of living.
Indonesia still heavily relies on imports for industrial raw materials, energy, medicines, technology components, and certain foods.
When the rupiah weakens, import costs automatically rise. The business world then increases production costs. From there, the ripple effects begin to occur.
In macroeconomic theory, this condition is called imported inflation, namely inflation coming from abroad due to exchange rate weakening and global price increases.