CPI Measurement to Find Out the Inflation Level

CPI Measurement to Find Out the Inflation Level
The definition of inflation is a continuous increase in the prices of goods and services over a certain period of time. Price increases occurred widely, resulting in price increases for other goods.

Inflation calculations in Indonesia are carried out by the Central Statistics Agency (BPS), through surveys to collect price data for various kinds of goods and services, which are considered to represent public consumption spending. The data is used to calculate the inflation rate by comparing current prices and previous periods.

What is Inflation According to Experts

Inflation is a situation where the price level tends to rise. The following is the definition of inflation according to economists:

1. AP Lehner

The definition of inflation is the excess demand for goods in the economy as a whole.

2. AC Kley

Inflation is a continuous increase in the prices of goods and services and not just for a moment.

3. Boediono

According to Boediono, the definition of inflation is a continuous trend of increasing prices. Just one or two price increases cannot be called inflation unless there is a widespread increase or leads to an increase in most other commodities.

4. Winardi

Inflation is a period during a certain period when the purchasing power of the monetary unit decreases. This definition of inflation arises if the value of money deposited in circulation is greater than the amount of goods or services offered.

CPI Measurement to Find Out the Inflation Level

Quoting BI.go.id, CPI is one of the indicators used to measure the level of inflation. Based on The Classification of Individual Consumption by Purpose (COICOP) 2018, the CPI is divided into 11 expenditure groups. Here are some of them:

  1. Tobacco, food and beverage group.
  2. Footwear and clothing group.
  3. Water, housing, electricity and household fuel groups.
  4. Group of equipment, supplies and routine household maintenance.
  5. Transport group.
  6. Health group.
  7. Communication, information and financial services group.
  8. Sports, cultural and recreational groups.
  9. Food and beverage/restaurant provision group.
  10. Educational group.
  11. Group personal care and other services.

Inflation Control

Bank Indonesia’s monetary policy aims to manage price pressures originating from aggregate demand (demand management) relative to supply side conditions. Monetary policy is not intended to respond to rising inflation caused by surprise and temporary factors.

Inflation can be influenced by factors originating from the supply side or shocks, such as crop disruption due to flooding or an increase in oil prices. The inflation weight is influenced by supply and shock factors, represented by the Volatile Food and Administered Prices groups and covers 40% of the CPI weight.

Bank Indonesia’s ability to control inflation is quite limited if there is a large enough shock. For example, when there was an increase in fuel prices in 2008 and this caused a spike in inflation.

Controlling inflation requires coordination between the government and Bank Indonesia through integrated macroeconomic policies. Both from fiscal, monetary and sectoral policies. Furthermore, Indonesia’s inflation characteristics are quite vulnerable to shocks from the supply side so that it requires special policies for this problem.

At the technical level, coordination between the government and Bank Indonesia has been realized by forming a Coordination Team for Target Determination, Monitoring and Control of Inflation (TPI) at the central level since 2005.

It can be concluded that the definition of inflation is the economic condition of a country where there is a tendency for prices and services to increase over a long period of time. This condition occurs because of the imbalance in the flow of money and goods.