Extra Paradox in the Middle of a Recession

KOMPAS/TOTOK WIJAYANTO

Enny Sri Hartati

The latest report from Statistics Indonesia (BPS) showed a 0.05 percent deflation in September 2020. This deflation reflects the consistent drop in Indonesia’s Consumer Price Index (CPI) over the past three consecutive months. The declining CPI amid the pandemic indicates a corresponding drop in household consumption, or purchasing power. Oversupply is certainly not the cause of the fall, because the Covid-19 pandemic has disrupted production.

Without waiting for the upcoming BPS report on gross domestic product (GDP) growth, which is to be released on 5 Nov. 2020, it is almost certain that the Indonesian economy has fallen into a recession in the third quarter, especially since the food, beverage and tobacco and the transportation sectors are major contributors to deflation. In fact, these two sectors are key indicators of human activities in the real economy. The transportation sector is the primary gauge of economic recovery, while falling food prices can indicate two things: a decline in consumption, which is quite worrisome because it relates to basic human needs, and a drop in the incomes of food producers.