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The Impact of Global Inflation on the Indonesian Economy

Global inflation has a significant impact on the Indonesian economy, affecting various sectors in the context of business, people’s purchasing power and macroeconomic stability. When global inflation rises, prices of commodities, raw materials and imported goods usually rise, adding pressure to the domestic economy. First, the impact of global inflation can be seen from the increase in prices of goods and services. Indonesia, as a country that imports a lot of food and energy, is experiencing increasing production costs. For example, soaring world gas and oil prices affect transportation and energy costs, which in turn impact the prices of consumer goods. This, of course, erodes people’s purchasing power, especially for the lower middle class. Furthermore, global inflation also occurred due to tight monetary policies from developed countries, especially the United States. An aggressive increase in interest rates could cause capital to flow out of developing countries such as Indonesia. When investors withdraw their funds, the rupiah exchange rate can weaken, which again increases the price of imported goods and contributes to domestic inflation. In the trade sector, increasing global inflation could disrupt Indonesia’s exports. If the export destination country experiences high inflation, the level of demand for Indonesian products may fall. This decrease in demand could cause the trade surplus to decrease and potentially increase pressure on the balance of payments. From an investment perspective, high global inflation often influences foreign investment decisions. High economic uncertainty can make investors hesitate to invest capital. This could hamper infrastructure projects and innovation that should support economic growth. Furthermore, inflation also requires the Government to take preventive action in the form of fiscal policy. Increasing subsidies for various basic necessities is one of the steps taken to protect society from the impact of inflation. However, this policy needs to be balanced with reducing waste in the government budget so as not to burden the economy in the long term. Local companies are adapting to global inflation by increasing operational efficiency and product innovation. However, some small and medium-sized businesses may be forced to raise prices or even close their businesses. This can result in a reduction in employment opportunities, which in turn worsens the socio-economic conditions of society. In response to the impact of global inflation, Indonesia also needs to strengthen economic resilience by increasing domestic production, reducing dependence on imports, and improving trade policies. Collaboration between government, business actors and society is very important to face this challenge. In the long term perspective, global inflation forces Indonesia to think about new strategies in managing the economy to make it more resilient. Improvements in the agricultural sector, economic diversification and improving the quality of human resources will be the key to facing the challenges of inflation in the future. Rising global inflation does bring many challenges, but it also provides an opportunity to build a stronger and more sustainable economy in Indonesia.