Indonesia's March inflation rate eased to 3.5% year-on-year, down from 4.6% in February, as government stimulus measures helped offset fading base effects and pressures related to Lebaran, according to DBS Group Research economist Radhika Rao [1]. The passage of base effects from the second quarter is expected to normalize inflation, with the absence of an increase in retail pump and non-subsidised fuel products anticipated to cap inflationary pressures [1].
To protect consumers' purchasing power, authorities have absorbed the initial shock from global energy prices. However, Rao warns that a further rise in oil prices could increase the likelihood of partial passthrough to domestic fuel prices, potentially fueling inflation and prompting a shift toward tighter policy [1].
On Wednesday, the Indonesian government announced new energy conservation measures, including fuel rationing (subsidised fuel cap at 50 liters per day), a 50% B50 rollout from July, civil servants working from home once a week (except in strategic sectors), lower vehicle usage, reduced travel requirements, a review after two months, and holding unsubsidized fuel prices unchanged after initial expectations of an impending hike from April 1. Adjustments to the Free meal program (MBG) are expected to yield potential savings of approximately IDR25 trillion, or 0.1% of GDP [1].
Bank Indonesia is expected to remain on hold this month, while monitoring financial market stability, rupiah movements, and risks associated with a potential increase in subsidised fuel prices, which could unanchor inflationary expectations [1].
CONCLUSION
Indonesia's inflation has moderated in March, supported by government stimulus and energy policy measures. While current policies provide temporary fiscal relief, further increases in oil prices could pose risks to inflation and prompt tighter monetary policy. Bank Indonesia is likely to maintain its stance for now, closely watching market stability and fuel price developments.