Influence of Inflation in Indonesia

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Influence of Inflation in Indonesia

Previously we have discussed the influence of inflation on stock prices but now we will discuss the effects of inflation in Indonesia. Before we discuss in more detail about the influence of inflation in Indonesia, we should understand what is called Inflation. So the name of inflation can be likened to its existence like a ghost which is an astral creature that is visible but we can feel its existence. And most of the names of inflation are very harmful and evil.

So inflation is a continuous increase in the price of living necessities.
 And what is called inflation itself is grouped into several groups based on the percentage increase, namely,
  1. Light inflation is inflation that occurs with price increases ranging <10% per year.
  2. Medium inflation, namely inflation that occurs with price increases ranging from 10% to <30% per year.
  3. Heavy inflation is inflation that occurs with the increase in prices ranging from 30% to 100% per year.
  4. Inflation hyperinflation that occurs with price increases above 100% per year.
Hyperinflation itself has occurred in Germany and as you can see drawn above there are small children who are playing the German currency because even though the money accumulates but the value is not much because that amount of money is not enough to buy a piece of bread at that time.
Hopefully in our country, the State of Indonesia will not happen again, which is called Hyperinflation because it really hurts us all …
And before we discuss the effect of inflation in Indonesia, let’s discuss first about some things that can cause the emergence of inflation itself.

#A. Factors Causing Inflation

There are several things that can trigger inflation in a country and the following is a detailed discussion of these factors.

# 1. Inflation Due to Demand Pull Inflation

Inflation in Indonesia can occur if there is a group of people who are too fond of a particular product on the market. And because the number of requests from these community groups is increasing and the increase in the number of requests is not accompanied by an increase in the number of goods, the price of these goods will gradually increase.

# 2. Inflation Due to the Increasing Amount of Money in circulation (Quantity Theory Inflation)

Things like this can definitely make prices increase. So the more money circulating in the community, the more the price of an item increases. How come the number of currencies increases? can you
For example, if all employee / civil servant salaries rise then automatically the amount of money circulating in the community also rises and if the amount of goods does not increase then among these people will be competing to get the amount of goods by bargaining prices whose direction of movement is increasingly increase the price of the item.

# 3. Inflation Due to Increase in Production Costs (Cost Push Inflation)

If a factory experiences an increase in production costs, in order to keep getting a positive profit, the plant must increase the price of the product in the community. How come production costs go up? Can you do it .
The rising production costs can be caused by many factors, one of which is the increase in basic production materials and demands for increases in employee shop prices.

# 4. Mixed Inflation (Mixed Inflation)

That is inflation that occurs because of an imbalance between supply and demand or the amount of inventory and supply. What do you mean? Here’s what the skipper means . If the amount of demand for an item rises but it turns out that the availability of the item is very limited, the price of the item will increase significantly.
For example, the amount of demand for rice staples rose and it turned out that the availability of rice was limited because of several factors such as crop failure and limited agricultural land so that the price of rice would be more expensive.

# 5. Inflation Because of the Structural Theory Inflation

What do you mean? Inflation that occurs due to population growth and is not accompanied by the ability to produce goods. So that demand is difficult to fulfill, which in turn increases the price of the item.

# 6. Inflation Due to the Increase in Fuel and Electricity Prices

When energy prices, namely the prices of fuel oil and electricity, experience an increase, inevitably all industrial sectors will increase the price of their products, including the price of food staples in traditional markets.

Why can this happen? Because Energy is the main factor that drives the wheel of production so that without fuel and electricity, it is impossible for the economy wheel to spin.

# 7. Inflation Because of Foreign Factors

These foreign factors will greatly affect the size of the State revenue (Foreign Exchange) because this is closely related to the number of Export-Imports to other countries. If we have good relations with a particular country and say that country is the main objective of export activities. And it turns out that the country has experienced an economic collapse and it is inevitable that our source of income will decrease.

And if these conditions continue to occur and we cannot overcome them, our cash money will experience a decline which in turn will bring bad effects, namely the economic crisis in our own country.

#B. Influence of Inflation in Indonesia

After we know what are the causes of inflation, we need to know what are the effects of inflation, especially in this beloved country of Indonesia, which we will see from various sides of business or business, especially the stock trading business and forex trading.

The following is a brief explanation of the influence of inflation in Indonesia,

Influence of Inflation from the Negative Side:

  1. With inflation, it is likely that the Central Bank will raise the benchmark interest rate to compensate for the inflation.
  2. Borrowing costs will be increasingly expensive because the Central Bank has raised interest rates. So if you have debt through the Bank or Leasing whether it is for mortgage fees, school fees, and or other costs then you must be prepared if your loan interest will increase.
  3. Refer points # 1, most likely the stock market will experience a correction. Why? if the benchmark interest rate increases, the company (issuer) that has a lot of debt will experience a decrease in income because the proceeds will be more to pay off debt. And contrary to the currency market, many investors will buy local currencies because of higher debt repayment rates.
  4. Food staple prices will be more expensive so we have to spend more than usual.
  5. Inflation is not suitable for Long Term Investors because inflation can reduce wealth whether in the form of savings, deposits, or debt securities.
  6. If the inflation is a hyperinflation group then it is likely that our lives will be destroyed because food prices are very expensive and of course the country’s economic conditions will be destroyed.

Influence of Inflation from the Positive Side:

  1. Your salary will most likely go up. If your company is a good company, then it is likely that your salary will increase as inflation increases every year.
  2. If you have a gold investment instrument, it is likely that the value of your assets will increase.
Now if you already know what are the causes of inflation and the influence of inflation in Indonesia coupled with your own knowledge of inflation then you can conclude what inflation is itself.
Inflation that can be controlled or we can call it mild inflation can indicate that the quality of life of the community is increasing. Why? Because people are able to compete with one another to get an item .
But if the inflation cannot be controlled such as the hyperinflation in Venezuela which is 1000,000% in 2018 (source: Daniels, Joe Parkin (July 25 2018). “Life’s a struggle as Venezuela is inflation heads for one million per cent .  Guardian .)
Do not let what happens in the country of Venezuela also occur in the country of Indonesia.
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