The Impact of Global Inflation on the Indonesian Economy

Global inflation significantly influences various aspects of the Indonesian economy. In recent years, inflation fluctuations in major countries have had an impact on domestic inflation, affecting people’s purchasing power and economic stability. Many factors cause global inflation, including rising raw material prices, supply chain disruptions and geopolitical uncertainty. One of the most visible impacts is the increase in prices of goods and services. Indonesia, as a country that relies on imports for several commodities, feels the direct impact of rising international prices. For example, food and energy prices are rising, which contributes to high domestic inflation. This reduces people’s purchasing power, especially low-income groups who are most affected by the rising cost of living. The next impact is on investment. Global inflation uncertainty makes investors more careful in placing capital. Although the Indonesian government is trying to attract investment, high inflation can reduce the interest of foreign investors. In addition, increasing interest rates in response to inflation can also increase the liability burden for companies. The exporter sector also feels the impact of global inflation. While some Indonesian products, such as palm oil and textiles, benefit from higher prices, rising production costs due to inflation can reduce profit margins. This could affect the competitiveness of Indonesian products in the international market. The Indonesian government through Bank Indonesia is trying to control inflation with tight monetary policy. Raising the benchmark interest rate aims to stabilize inflation and encourage people to save more. However, this policy has its own consequences — economic growth may slow as liquidity tightens. On the other hand, global inflation also affects the rupiah exchange rate. When inflation increases in other countries, exchange rates can be affected, causing volatility. However, several analysts point out that the rupiah is relatively resistant to fluctuations thanks to fairly strong foreign exchange reserves and good control over domestic inflation. In addition, geopolitical uncertainty, such as conflict in Europe or tensions in the Asia-Pacific, has implications for the flow of goods and investment. Indonesia must manage the effects of this uncertainty, both locally and globally, to maintain economic stability. The banking sector also faces challenges, with increasing credit risks due to high inflation. Banks must be more selective in providing loans, which could slow down the growth of the business sector. All these aspects show that global inflation has a chain impact on the Indonesian economy, from micro to macro. By monitoring inflation trends and adapting appropriate policies, Indonesia can face this challenge. Policies that focus on strengthening the agricultural sector, increasing domestic production, and diversifying energy sources will help reduce dependence on imports and increase economic resilience.