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9. Change in Consumer Price: Indonesian Cities, 1997–99
- ISEAS–Yusof Ishak Institute
- Chapter
- Additional Information
Change in Consumer Prices 247© 2003 Institute of Southeast Asian Studies, Singapore m n ARIS ANANTA, DAKSINI KARTOWIBOWO, AND NURHADI WIYONO Price Change and Welfare When price levels increase but incomes do not increase proportionately, purchasing power will decline, as well as welfare. However, when the increase does not occur for all goods and services, but only for a particular group of goods and services, people may not have to suffer. The rising prices may force society to reduce the consumption of those particular goods/services, and substitute with cheaper goods and services. For example, if the increase in the price of meat and fish is higher than the increase in the price of eggs, people may reduce the consumption of meat and fish and increase the consumption of eggs. However, it is unlikely that the increase in the price of rice will be followed by a reduction in the consumption of rice if the people view rice consumption as a must. For these people (the majority of Indonesians may still be categorized in this group) a rapid increase in the price of rice will hurt them severely. When the prices of many goods/services increase but not at the same rate, the relative prices of those goods/services will change. If the price of one simple lunch in the canteen of the University of Indonesia was Rp1,000 in June 1997 and Rp2,500 in June 2000, the price of that good has risen by 150 per cent. If the price of the Kijang (a car) was 60 million rupiah in June 1997 and 120 million rupiah in June 2000, the price of 9 247 CHANGE IN CONSUMER PRICES Indonesian Cities, 1997–99 Reproduced from The Indonesian Crisis: A Human Development Perspective, edited by Aris Ananta (Singapore: Institute of Southeast Asian Studies, 2003). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced without the prior permission of the Institute of Southeast Asian Studies. Individual articles are available at . 248 Aris Ananta, Daksini Kartowibowo, and Nurhadi Wiyono© 2003 Institute of Southeast Asian Studies, Singapore the Kijang has risen by only 100 per cent. Therefore, the price of the simple food in the University of Indonesia has risen faster than the price of the Kijang. The relative price has changed. To buy one Kijang in June 1997 people had to sacrifice 60 thousand simple lunches in the University of Indonesia; in June 2000 people had to sacrifice only 48 thousand simple lunches. In other words, the Kijang had become cheaper relative to the simple lunch, or that simple lunch had become relatively more expensive compared with the Kijang. The above example may illustrate that those whose budget for a simple lunch is relatively large in their overall budget may suffer more than those whose simple lunch does not comprise a big portion of their overall budget. An administrative staff in a state university who did not think of buying a Kijang because of their budget limitations may have experienced a relatively larger drop in welfare, compared with those who had considered the Kijang as a relatively more important item in their budget. This chapter aims to examine the change in relative prices from January 1997, before the crisis started, to December 1999, in an attempt to know whether there are any patterns of changes in relative consumer prices during the three years in twenty-six provincial capital cities and one at the national level. This analysis aims to contribute to a better understanding of the welfare of consumers during the period January 1997 to December 1999, by examining the trend in the CPI (consumer price index) at the national and provincial capital city level, for various kinds of commodities. It should be cautioned from the outset that CPI has many limitations and that the analysis contributes to only one of the many aspects of consumer welfare during the crisis. The analysis is limited to the big cities because of the scarcity of data although as mentioned in Chapter 1 of this volume, the crisis is more an urban phenomenon. The chapter starts with some illustrations on the situation in Indonesia during the crisis, especially relating to how the people coped with the crisis. The concept, limitation, and strength of a CPI analysis are elaborated in the third section, followed by the empirical results and the conclusion. Some Ways of Coping with the Crisis Indonesia is a...