Indonesia’s inflation rate is higher than in other developing countries. While other developing countries experienced an inflation rate of between 3% and 5% during the 2005-2014 periods, Indonesia had an average annual inflation rate of about 8.5% over the same period. This of course would give more effects for Indonesia especially in economy of Indonesia. Those are the effects of high inflation in Indonesia that felt by all the elements of people in Indonesia.
- The decrease of Indonesian export
While inflation occurs, the competitiveness of export goods decreases. His is due to the expensive price of exported goods from time to time. Inflation can burden the exporters and countries. The state will suffer losses as the competitiveness of exported goods decreased. It would also impact in the decrease sales volume. The foreign exchange that earned is also getting smaller.
- Most Imported Products From Indonesia
- Importance of Agriculture in Indonesia
- History of Capital Market in Indonesia
- The decrease of the rate of deposit
In the inflationary period, the rate of inflation leads to a decrease in the real income of savers due to the minimal reduction in the amount of interest received. For example, in January of 2017 someone deposited his money to the bank for 1 year deposit. These deposits generate interest of 15% per year. If the inflation rate during January 2017 – January 2018 is high enough, then 11% the income from the deposited money remains 4% only. That is why the interest of people to save will be reduced.
- The Unstable cost of goods sold
Inflation will cause the calculation to set the cost of goods can be too low or even too high. Because the percentage of inflation is irregular, we can ascertain what percentage of inflation is for a given period. As a result, the determination of the cost of goods sold and the selling price is often not fixed. This inflationary state can disrupt the economy especially for producers.
- The effect toward people’s income
Inflation could change people’s income. The changes can give the advantage or event disadvantages. In some conditions, such as soft inflation, inflation may encourage economic development. Inflation can encourage entrepreneurs to expand production. Thus, there will be new job opportunities as well as an increase in one’s income.
However, for people with the fixed income, inflation will cause loss because the fixed income makes them get less goods and services than usual. If looking at the perspective of Indonesian society, inflation is often become the disadvantage to lower levels of society.
- Income distribution is getting worse
If taken from the country’s point of view, inflation will be beneficial for those with higher income levels than their inflation rate. However, their numbers are very small compared to those who suffered losses due to inflation. Therefore, the pattern of revenue sharing in a country becomes one-sided and uneven.
- The effect toward economy stability
Inflation will cause disruption of economic stability. This is because when inflation occurs, there is a possibility that inflation will be continuous, which means that prices will continue to rise. Consumers therefore decide to make large-scale purchases before prices rise, leading to increased demand. In the other hand, producers will make the lower supply, because the sales process when inflation will cause producers to get bigger profits.
Therefore, it can be concluded that rising demand and decreasing supply will accelerate the rate of inflation. As a result, economic conditions in general will be even worse.
7. The effect for producers
For producers, inflation can be profitable if the income earned is higher than the increase in production costs. Then, the producers are encouraged to double their production (usually in big companies). However, when the inflation leads to increase production costs and ultimately to the detriment of producers, producers are reluctant to continue production.
Manufacturers can stop production for a while, even if they are not able to go on with inflation, the business could be closed (usually in small businesses).
8. The creditor will get the loss
Conversely, a negative impact will be felt for the creditors / lenders. Why? Because with the inflation, the value of money they receive will be smaller than when he had lent in before inflation. In contrary, for people who borrow money to the bank (debtor), inflation is profitable because at the time of payment of debt to creditors, the value of money is lower than at the time of lending the money.
- The price is getting higher
Inflation caused by wages cost inflation such as a rise in civil servant salary followed by private businesses, the prices of other goods will also rise. Usually inflation due to wage or salary increases is feared because it will be biased to inflation sustainably. As wages rise, prices will rise. As the price of goods rises, wages must be raised and this will likely continue.
- Making a problems in the balance of payments
Inflation causes the price of imported goods to be cheaper when compared to the price of domestic production goods. Then imports grow faster, but exports will grow slowly. Thus the flow of capital abroad will be higher than those which entering the country. This condition will give a result of deficit in the balance of payments and a decline in the value of the domestic currency.
- The raising of speculative investment
While the period of inflation, the owners of capital tend to do speculative investment, for example by buying land, houses, or store. It would be considered as more valuable and profitable when compared to productive investments that will not certainly give the positive profit in the next period. That is why during the inflation period, there would grow the companies of real estate, business property, and the land dealer.
- Many projects are discontinued
While inflation occurs, some projects would suddenly stop due to the raising price of the material. Some companies that join the project would get much loss if the project is continued. That is why the government program in some projects with some independent company would stop for a while during the inflation. However, there would be some companies that brave enough to continue the project since they have speculated it well and sure that they would not suffer from loss.
Those are the effects of inflation. Hopefully, the case of inflation in Indonesia could be managed well. As the citizens of Indonesia, it is a must for you to support the government program to overcome high inflation in Indonesia