The Impact of Global Inflation on the Indonesian Economy

The impact of global inflation has a significant effect on the Indonesian economy. Inflation that occurs in large countries, such as the United States and Europe, can affect domestic markets, especially through trade and investment channels. When global inflation rises, international prices of goods and services soar, triggering an increase in import costs in Indonesia. One of the direct impacts of global inflation is the increase in raw material prices. Indonesia, as an importing country, is very dependent on supplies of goods from abroad such as energy, food and industrial materials. The increase in prices of these goods will impact production costs, which will ultimately be transferred to consumers in the form of higher prices for goods and services. Another important component is the impact of global inflation on the rupiah exchange rate. When inflation rises in developed countries, investors tend to look for more stable assets, usually the US dollar. Exchange rate fluctuations make borrowing costs more expensive, affecting debt-dependent sectors. The energy sector is one of many that feels the direct impact of inflation. The increase in world oil prices affects transportation and production costs. Higher fuel prices will result in increased logistics and distribution costs, triggering domestic inflation. This can create a continuous cycle of inflation. The food industry is also pressured by global inflation. The increase in the costs of animal feed, fertilizer and transportation has caused domestic food prices to rise. This risks increasing the number of people trapped in poverty, considering that most Indonesians spend a large proportion of their income on food. Consumers, in turn, face reduced purchasing power. The increase in prices of goods and services without being balanced by an increase in income causes people to have to think harder about managing expenses. This can reduce consumption, which is one of the pillars of economic growth. This change in consumer behavior has the potential to slow down Indonesia’s overall economic growth. The manufacturing sector, which is the backbone of the Indonesian economy, is also affected by global inflation. An increase in production costs affects a company’s profit margin and can lead to a reduction in investment. In the long term, this could hinder innovation and sustainable industrial development. In facing the impact of global inflation, the Indonesian government must consider various strategic steps. One of them is strengthening foreign exchange reserves to stabilize the rupiah exchange rate, as well as diversifying import sources so as not to be too dependent on a few countries. Prudent monetary policy, such as interest rate adjustments, is also important to control domestic inflation. However, it must be remembered that this policy must be balanced, so as not to unduly curb economic growth. In conclusion, the impact of global inflation on the Indonesian economy covers various aspects, from increasing prices of goods and production costs to decreasing people’s purchasing power. With the right policy steps, it is hoped that the Indonesian economy can adapt and survive in this uncertain situation.