The Impact of Global Inflation on the Indonesian Economy

The impact of global inflation on the Indonesian economy is a crucial issue that needs to be discussed. As a country that is integrated in the international trade system, Indonesia is not immune from the influence of inflation that occurs in the global market. Global inflation is generally caused by spikes in commodity prices, supply chain disruptions, and monetary policies in large countries such as the United States and the European Union. One of the significant impacts of global inflation is an increase in domestic prices of goods and services. Rising crude oil prices, for example, result in higher transportation costs, which in turn affect the prices of basic goods. In Indonesia, the price of rice, cooking oil and other raw materials could increase, triggering domestic inflation and eroding people’s purchasing power. These increases often lead to social protests and public dissatisfaction, which can lead to sociopolitical instability. Apart from that, global inflation also affects the rupiah exchange rate. When inflation increases in large countries, they will usually increase interest rates to control inflation. This increase in interest rates can attract foreign capital flows to these countries, resulting in depreciation of the rupiah exchange rate. This creates a chain effect: imported goods become more expensive, and production costs for industries that depend on imported raw materials become higher. This increase in costs encourages producers to increase prices, thereby adding to inflationary pressure. Indonesia’s export sector was also affected. In the context of global inflation, demand for Indonesia’s superior products such as palm oil, coal and agricultural products can fluctuate, depending on the economic conditions of the export destination country. When inflation is high, consumers in the destination country may reduce purchases, thereby reducing the country’s income. On the other hand, if commodity prices rise due to global inflation, Indonesia could benefit from higher export earnings, although there is a risk of rising prices of goods in the domestic market. Bank Indonesia (BI) faces challenges in maintaining economic stability. In this situation, BI may need to adjust monetary policy to control inflation. However, adjusting interest rates too much can slow economic growth. This is a dilemma because strict policies to stem inflation could hamper investment and growth, which are vital for post-pandemic economic recovery. The public must also be alert. Inflation affects household budget allocations, where they have to plan spending more wisely. An increase in the price of basic goods can encourage people to look for cheaper alternatives, potentially reducing the quality of consumption. This shift in consumption patterns requires attention from the government and business actors to ensure the stability of the supply of goods in the market. With the right policies, the government can help mitigate the impact of global inflation and ensure protection for society. Facing this challenge, Indonesia needs to adapt well through diversifying export markets and developing local sectors to reduce dependence on imports. With strategic steps, Indonesia can build stronger economic resilience and face global inflation fluctuations more effectively.