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Price hikes and Ramadhan

Publication Date : 19-07-2012

 

With fasting month Ramadhan approaching, households in Indonesia began as early as last week to stock up on basic foodstuffs and other essentials to welcome the Muslim holy month.

Although Muslims are prohibited from eating and drinking from dawn until dusk during this month, demand for food is unusually high as people generally tend to serve a richer variety of food and beverages to break their fasts. This situation has undoubtedly triggered an increase in price of almost all basic commodities including rice, sugar, cooking oil, meat, chicken and eggs.

The prices of these essentials have increased by between 5 to 20 per cent in the week leading up to the start of the fasting month and will likely continue until after the Idul Fitri celebration.

But the surge in demand is not solely responsible for the recent price increases. Distribution problems caused by inefficient logistics systems also contribute in large part to the cost increases. For example, heavy congestion over the past few weeks at the Merak port, which links Java and Sumatra, has interrupted food supplies to and from the country's main islands, causing price rises. Road repair projects along the Pantura northern coastal highways linking major cities in Java, have also increased the transportation costs of food products.

As the festive season of Ramadhan and Idul Fitri — often dubbed as the country's biggest shopping day — usually account for more than 30 per cent of the annual sales of consumer products, retailers are often tempted to reap larger profits by marking up their prices.

Since these trends occur every year, the government should have prepared to mitigate seasonal price increases. But the government's efforts to anticipate these seasonal price pressures have been far from adequate.

Coordinating Economic Minister Hatta Rajasa only announced a series of measures to cope with the seasonal price increases on Tuesday, more than one week after the wave of price jumps and severe supply shortages began in many cities.

Rajasa asked the ministers of transportation and agriculture to ease transportation problems and promised to increase food supplies through open market operations to help drive down prices, but it may take some time because these measures are be able to stabilise prices as the government lacks direct control over the supplies of basic commodities, with the exception of rice.

Activities carried out by a number of government offices, state and private companies to organise bazaars to sell main commodities such as cooking oil and sugar at affordable prices seem to be more effective in dealing with the seasonal increases in demand.  Hopefully, these practices will also inspire other companies to conduct similar market operations as part of their corporate social responsibility (CSR) programmes.

Viewed from a macroeconomic standpoint, the price increases during the fasting month may, however, be worrisome as they may affect the targeted inflation rate.

Higher inflation will not only erode the buying power of salaried (fixed income) people, but more significantly will affect the country's macroeconomic management and economic growth.

The consumer price index unexpectedly rose to 4.53 per cent in June year-on-year as food costs climbed, and the surge will certainly continue in July as the country faces even higher inflationary pressures during the fasting month. June inflation sent a warning signals as it surpassed the lower end of the government's inflation target of between 4 and 5.3 per cent for 2012.

 

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