Commodity Prices and Inflation in Indonesia: Does the Pass‐Through Really Matter?

We estimate the commodity price pass‐through to consumer price and food price inflation for the case of Indonesia using quarterly data from Q1 2000 to Q3 2023. In the analysis, we consider the aggregate commodity price as well as its two components, namely, energy price and non‐energy price. Employing the local projections method, we find evidence supporting significant spillover from changes in aggregate commodity price, energy price and non‐energy price to consumer price inflation, which is apparent when the commodity price changes are positive, and the inflation level is high. We also document significant responses of the food prices to changes in the commodity prices under high inflation environment. Among the three commodity prices, the non‐energy price seems to have the largest pass‐through to both consumer and food price inflation. Moreover, as compared to its effects on consumer price inflation, the non‐energy price pass‐through to food price inflation is relatively stronger. These results bear important implications for monetary policy responses amid wide swings in commodity prices.