Indonesia says it’s working to become more resilient to inflation shocks from the U.S.

[Indos]

Indonesia says it’s working to become more resilient to inflation shocks from the U.S.​

PUBLISHED THU, FEB 23 2023
3:26 AM EST
UPDATED 5 HOURS AGO
Sumathi Bala

KEY POINTS

• Indonesia is taking steps to make its economy more resilient so it can withstand global shocks like inflation, especially from the United States, said Finance Minister Sri Mulyani Indrawati.
• As the world’s largest economy, what the U.S. does has strong implications worldwide, including Indonesia, said the minister.
• Unlike the United States, where inflation remains stubbornly high, Indonesia’s inflation slowed in January.

We expect our economy to grow up to 5.3% this year, says Indonesia minister​

Indonesia is taking steps to make its economy more resilient so it can withstand global shocks like inflation, especially from the United States, said Finance Minister Sri Mulyani Indrawati.
As the world’s largest economy, what the U.S. does has strong implications worldwide, including Indonesia, said the minister.

To fight inflation, the U.S. has hiked interest rates, which has affected capital outflows because of the strengthening of the dollar, Sri Mulyani told CNBC’s “Street Signs Asia” on Thursday.
In light of that, the finance minister said, Indonesia is putting more effort to “increase our resiliency.”

That includes “making sure first that the financial sector is healthy and strong for this interest rate movement. Second, that the real sector economy is going to be also resilient in order for them to absorb this shock,” said Sri Mulyani, who is attending the Group of 20 meeting of finance ministers and central bank chiefs in India this week.

In early February, the U.S. Federal Reserve raised its benchmark interest rate by a quarter percentage point and gave little indication it is nearing the end of this hiking cycle.

Inflation mellows​

Unlike the United States, where inflation remains stubbornly high, Indonesia’s inflation slowed in January.

Headline consumer price index, a key indicator of inflation, dropped to 5.28% year on year in January from 5.51% in December, according to government data.

Stripping away volatile food and energy prices, core inflation came in at 3.27% in January year on year, dropping slightly from 3.36% in December, data showed.

Last week, Indonesia’s central bank held its seven-day reverse repo rate at 5.75%, pausing after six consecutive hikes. But inflation still remains well above Bank Indonesia’s target range of between 2% and 4%.

Still, Indonesia has done well in coordinating its fiscal and monetary policy tools to contain inflation and maintain growth, said Sri Mulyani.

She added the government is also supporting the central bank to make sure inflation remains low so that it doesn’t hurt the purchasing power of its people.

“We also know that the source of inflation is not from the central bank, from the money circulation or money supply. We also see that the inflation is coming from some supply side. That’s why we addressed this issue,” said Sri Mulyani, stressing inflation will moderate this year.

Strong growth​

Despite the global slowdown, Indonesia’s economic growth remains strong as domestic demand continues to improve, the minister added.

“Last year, we had a very good year in terms of growth. We are 5.3%. I think this is also … the highest among the G-20 as well as the ASEAN countries,” said Sri Mulyani.

This year, growth is coming from domestic consumption and investment, which “are all recovering very strongly,” she added. “Consumer confidence is also very high.”

Indonesia says it's working to become more resilient to inflation shocks from the U.S.

Indonesia is taking steps to make its economy more resilient to withstand global shocks like inflation, especially from the U.S., said its finance minister.

www.cnbc.com

 

[Thəorətic Muslim]

Too many people are illiterate to basic economic theories, might as well call them law. Globalization has just globalized inflation.

The inflation rates of large economies heavily impact small-medium economies. While most large economies have synchronized their policies to control inflation, stabilized by the flexibility of their Central Banks, small-medium economies are left to lessor avenues.

A great basic read:

https://www.bde.es/f/webpi/SES/staff/delriolopezpedro/files/do1608e.pdf

And:

Globalisation and its implications for inflation in advanced economies

The European Central Bank (ECB) is the central bank of the European Union countries which have adopted the euro. Our main task is to maintain price stability in the euro area and so preserve the purchasing power of the single currency.

www.ecb.europa.eu

 

[Indos]

The inflation going on in USA is impacting smaller economies due to the respond of The Fed by raising the interest rate.

If the inflation is not being responded by raising interest rate, but rather by market operation (which is impossible for liberal capitalist economy like USA) then smaller economies will not get any negative impact, even with higher inflation in USA it will give smaller economies advantage (provided USA doesnt raise the interest rate) because the real interest rate of smaller economies currency will be higher than USD (Usually smaller economy has positive real interest rate compared to USD).

The problem with The Fed raising interest rate is because it will make USD previously invested in emerging and developing economies are pushed back to USA. This later become problem with some countries that needs USD reserve for transaction like import. The other negative effect felt by smaller economies because of The Fed tightening policy are the devaluation of their currency that could push more inflation from imported goods, capital outflow from stock and bond market that will be bad for the overall economy as we can see already happening in some countries.

The problem we see in 2022 is rather complex. The Fed has already been starting to raise their rate since late 2021 which is in part is due to balance previous loosening (quantitative easing-printing money) that happened since Obama administration. The invasion of Ukraine that later raise energy prices so high due to Western sanction make The Fed tightening policy become less effective to control inflation and make it going quite long, it then make several countries get huge financial difficulty.

 

[tonyget]

The only long term solution for any country to hedge against economic impact by US monetary policy，is De-dollarization