Regional inflation dynamics and its persistence – The case of selected regions in Indonesia
Regional inflation dynamics and its persistence – The case of selected regions in Indonesia

Summary/Abstract: It is difficult to say whether adopting inflation targeting leads to converged regional inflation rates. This paper observes the dynamics of regional inflation rate in the case of three selected cities (Medan, Jakarta, and Makassar) in Indonesia during the regional autonomy and fiscal decentralisation era. We used monthly inflation rates data between January 2001 and December 2018 to achieve this. We found that there is no significant difference between regional and national inflation rates. However, the inflation rate differences occurs both between-months within a year and between-months across years. The speed of adjustment is found to be unchanged after the adoption of inflation targeting. It seems that inflation targeting fails to reduce the volatility of inflation rates both at the regional and national levels. Since the regional inflation rate is typically generated by supplyside, those results suggest that managing inter-region cooperation in the supply-chain will stabilise and reduce the national inflation rate.

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