Rice Remains Expensive, Contributing to Highest Inflation Rate in August 2023

Data from the Central Statistics Agency (BPS) shows that five main commodities contributed the most to inflation in August 2023.

Gasoline contributed the most to inflation, rising by 0.83% year-on-year (yoy). Second was rice, with a contribution of 0.41%.

Filter kretek cigarettes were third, contributing 0.21%. This was followed by rental housing and inner-city transportation fares, which increased by 0.11% and 0.09%, respectively.

BPS explained that annual (yoy) inflation reached 3.27% in August 2023. The Consumer Price Index (CPI) reached 115.22 points.

"The highest inflation occurred in Manokwari at 6.4% with a CPI of 122.04 points. The lowest occurred in Jambi (with inflation) at 1.92% and a CPI of 116.37 points."

(Read also: Inflation in Indonesia Slightly Increased in August 2023)

Reasons for the rising price of rice

The consistently increasing price of rice is likely to trigger inflation in September 2023.

According to Kompas.id, the Acting Head of the Central Statistics Agency (BPS), Amalia Adininggar Widyasanti, stated that there were no signs of rice prices decreasing in the third week of September 2023. The average price reached Rp13,477 per kilogram (kg).

On the other hand, the Director of Public Service Supply Chain at Perum Bulog, Mokhamad Suyamto, said that the increase in domestic rice prices was due to the impact of El Niño. According to Katadata, most farmers are currently in the planting season, resulting in low rice production.

Therefore, said Suyamto, Bulog is distributing market operation rice throughout Indonesia. Currently, a total of 800,000 tons of market operation rice has been distributed.

"We will continue to distribute it daily until the price stabilizes," he said in a written statement on Wednesday (27/9/2023).

Meanwhile, the Chairman of the Indonesian Rice Millers Association (Perpadi), Sutarto Alimoeso, believes that government rice assistance and market operations will lower rice prices. However, this decrease will not be significant.

"If it is truly implemented as planned, the price of rice will only fall slightly. It is very difficult for the price of rice to return to the initial price according to the Basic Production Price or the Highest Retail Price," said Sutarto to Katadata on Wednesday (20/9/2023).

Sutarto predicts that rice prices will not change significantly until the end of this year. This is because rice stocks, both among the public and the government, are tight or barely sufficient, a consequence of the decrease in production during the current year.

However, this former Head of Bulog emphasized that the decrease in national rice production is not due to climate issues as the government has stated. Sutarto argues that the decrease in rice production throughout 2023 is due to serious rice field land conversion and degradation, a lack of fertilizer, and the difficulty farmers face in obtaining certified seeds.

(Read also: Entering the Peak of the Dry Season, Rice Prices Rise Again in August 2023)