To calculate the change in the price of goods in the market. The Indonesian Central Statistics Agency (BPS) uses an indicator known as the Consumer Price Index (IHK), or in English, the CPI (CPI). This CPI calculation will become the main component in determining the societal real inflation rate and inflation target for the following year.
What is CPI? And how important is this indicator in determining price dynamics? Whether inflation or deflation? Check out the following comments.
Definition of Consumer Price Index (CPI)
The Consumer Price Index (CPI) is an index that measures the change in how much people pay when they buy something. The index is widely used as a material for calculating inflation and deflation in countries around the world, including Indonesia.
To calculate the CPI, relevant institutions first classify goods and services into categories. The institutions then conduct surveys of household economic actors in the selected areas to collect data on changes in prices of goods and services in those categories.
The Central Statistics Office (BPS) states on its official website that 835 commodities are currently under study. These items will be grouped according to the 2018 Classification of Personal Consumption by Purpose (COICOP).
In categorizing the products, there are 11 groups with 43 subgroups of goods and services, namely clothing and footwear, food, beverages and tobacco. Houseware group, water group, electricity and household fuel and many others.
BPS then surveyed 141,600 households in 90 cities across Indonesia, including 56 districts and cities. Surveys are conducted in different ways. Starting from visiting traditional markets, modern markets, to entering information through shops and official websites from BPS.
The frequency of collecting commodity price data varies by type. There are commodities that can be crawled once a week. But there are commodities that can be crawled once a month as well. Then the data collected by the staff is entered into a special application for calculation. The results of the CPI calculation are submitted monthly on the official website. Central Statistical Office.
As for the calculation method, CPI is calculated using a weighted average formula with one base year. in the Indonesian context The year used as a base is 2018=100. Here’s the formula:
Annual CPI of a commodity = (Average price of a commodity this year/Average price of a commodity last year or base year) * 100
This yearly CPI figure is entered into the following formula to get the inflation rate:
Inflation = ((CPI this year – CPI last year) / CPI last year) * 100
For example, the average change in commodity prices in 2020 is 106.5 and in 2021 it is 105, so the inflation rate is:
inflation = ((105- 106) /106) * 100
This means that in 2021 a country will experience deflation. (inflation will drop to 0)
Please note that CPI or CPI calculations differ from country to country. This has to do with the methods used. For example, member states of the European Union often use Consistent CPI (HICP) or corresponding CPI value
Here are the types of data that BPS uses to calculate the latest Consumer Price Index (CPI):
- Food, beverages and tobacco
- clothes and shoes
- Housing, water, electricity, gas and other fuels
- equipment, tools and household maintenance
- Information, Communications and Financial Services
- Recreation, sports and culture.
- food and beverage service
- Personal care and other services
As mentioned above, the 11 categories are divided into 43 subcategories. Information on the Consumer Price Index (CPI) by category, subcategory and by researched city can be found on the official website of the Central Statistical Office.
Why is the Consumer Price Index important?
1. Determine the inflation rate.
CPI or Consumer Price Index is the main indicator used by central bank to determine the real inflation rate and estimate the inflation target Actual inflation is the actual rate of inflation in the market. While target inflation is an estimate of next year’s inflation.
This inflation will spread to other policies starting from setting the bank interest rate. fiscal policy to the attractiveness of Indonesia as a source of investment foreign investorsTherefore, collecting and calculating CPI data cannot be arbitrary. and must be performed as accurately as possible
2. Establish a regional minimum wage (UMR).
Inflation and CPI are also important factors in determining the regional minimum wage (UMR). Simply put, the increase in the UMR must at least equal the increase in the prices of basic necessities. Including the price of the product that is part of the CPI.
An increase in UMR that is inconsistent with inflation and CPI will ultimately put pressure on people’s purchasing power. This is because people are unable to afford the goods and services they need. On the other hand, for job seekers, CPI and inflation data can be used as a basis for salary negotiations.
3. Set a policy to increase product prices in the business.
On the official BPS website you will find CPI data by category per city. You can use this information to determine the selling price of the product. to match the selling price of the same product in the market
For example, in October 2022, commodity prices for the Food, Drinks and Tobacco categories in Kediri City increased by 2.5%. If the current price of the food you sell is IDR 10,000 per pack, you can increase the price to IDR 10,250 to adjust accordingly. price of ingredients
4. It is an indicator of the purchasing power of consumers.
The CPI is also one of the main indicators to measure the purchasing power of consumers. This means that both researchers and governments can use this variable to assess the impact of price changes on one essential commodity on other commodities.
For example, the impact of fuel price changes on food and beverage prices in the region or Indonesia as a whole. The results of this study can be used to determine whether increases in fuel prices lead to a sharp rise in food and beverage prices. So does the fuel still have to be subsidized? A goal is a policy that the government implements more precisely and targeted.CPI (CPI) is an important component in Inflation CalculationAlthough methods and data are still needed and updated frequently to increase accuracy. But this information is still important for macroeconomic and microeconomic decision-making.