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IMF Analysis: El Niño Could Boost Indonesia's Inflation Rate

Adi Ahdiat 10/08/2023 18:00 WIB

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According to IMF analysis, Indonesia is the country in the Asia-Pacific region most vulnerable to inflation increases during El Niño events.

IMF (2015) Estimates of the Impact of El Niño on Inflation Rates in Asia-Pacific Countries

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IMF Analysis: El Niño Could Boost Indonesia's Inflation Rate

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IMF (2015) Estimates of the Impact of El Niño on Inflation Rates in Asia-Pacific Countries

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El Niño is a weather phenomenon that can reduce rainfall and trigger droughts in parts of the world. According to the International Monetary Fund (IMF), El Niño is also prone to driving up inflation rates in several countries.

"Such extreme weather conditions can limit the supply of rain-fed agricultural commodities, pushing up prices and general inflation, and can trigger social unrest in countries that depend on imported food commodities," said the IMF in its report *Fair Weather or Foul? The Macroeconomic Effects of El Niño* (April 2015).

The IMF reached this conclusion after analyzing macroeconomic data and El Niño events in 21 countries during the period from the second quarter of 1979 to the first quarter of 2013.

They found that El Niño tends to negatively impact countries whose Consumer Price Index (CPI) is dominated by the food group.

Among the Asia-Pacific countries analyzed by the IMF, Indonesia is the most vulnerable to rising inflation amid the El Niño phenomenon.

The IMF estimates that El Niño events could boost Indonesia's inflation rate by up to 0.25 percentage points per quarter (median value).

However, some Asia-Pacific countries actually experienced a decrease in inflation during El Niño, namely Australia and Singapore.

The IMF also stated that the economic impact of El Niño can be addressed with specific policy strategies, including strengthening agricultural infrastructure.

"On the macroeconomic policy side, inflation increases due to El Niño can be followed by monetary tightening," said the IMF.

"Investment in the agricultural sector should also be considered in the long term, especially to build more efficient irrigation and food supply chains," it continued.

Editor : Adi Ahdiat

"Disclosure: This is an AI-generated translation of the original article. We strive for accuracy, but please note that automated translations may contain errors or slight inconsistencies."

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IMF Analysis: El Niño Could Boost Indonesia's Inflation Rate

IMF Analysis: El Niño Could Boost Indonesia's Inflation Rate

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IMF Analysis: El Niño Could Boost Indonesia's Inflation Rate

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