For more than three decades, the standard playbook for taming inflation has remained virtually unchanged.
Faced with rising prices, central banks invariably resort to rising interest rates. The ripple effects are rapid: demand cools, consumption slows, and inflationary pressures gradually ease.
This inflation targeting framework has anchored global monetary policy since the 1990s, proving very effective, especially when dealing with demand-driven crises. However, the global economy is now facing a fundamentally different beast.
Over the past five years, price pressures have largely been caused by supply disruptions. First, the pandemic disrupted global supply chains. Soon after, the Russia-Ukraine war upended the energy and food markets.
Compounding these vulnerabilities is escalating geopolitical frictions—from European theaters to the US-Iran flashpoint in the Red Sea and the critical chokepoint of the Strait of Hormuz. At the same time, climate change has begun to systematically disrupt agricultural yields around the world.
In such a chaotic global landscape, aggressive monetary tightening may suppress consumption, but it cannot speed up harvest cycles, reopen blocked shipping lanes, or extract more crude oil.
This discrepancy raises a critical question for developing Asia: can the burden of controlling inflation still be left to central banks alone?
The changing face of Asian inflation
Indonesia is currently charting a different course. When state energy firm Pertamina adjusted non-subsidized fuel prices in July 2026, public anxiety over an inflationary spike was immediately ignited.
These fears were well founded; rising energy costs inevitably increase logistics and distribution costs, creating a domino effect that raises food and basic commodity prices.
Moreover, more expensive non-subsidized fuels often force consumers to migrate to subsidized alternatives. If this consumption shift intensifies, it increases the burden of government subsidies and squeezes fiscal space.
Consequently, the production pressure is twofold: monetary and fiscal. Left unchecked, this spiral threatens not only consumer purchasing power, but also national economic growth objectives.
In response to these headwinds, the central bank’s standard playbook dictates raising interest rates to anchor inflation expectations and dampen demand. While necessary, this toolkit is not lacking when the bottom line lies in production and distribution.
This is where Jakarta’s dual approach becomes instructive. Indonesia has not abandoned the Inflation Targeting Framework (ITF). As global energy shocks, a devaluation of the rupiah and external uncertainties rose, Bank Indonesia (BI) moved in tandem with its global peers.
Over the past three months, BI has gradually increased its base rate from 4.75% to 5.75% – a clear signal of its commitment to currency stability and its inflation target.
However, Indonesian policymakers recognize that monetary policy is an open instrument against supply-side shocks. Tariff hikes may reduce demand, but they cannot produce rice, ensure horticultural yields or reduce the costs of transporting fuel-driven goods.
Total Football Strategy
Consequently, Indonesia’s inflation strategy does not stop at the central bank’s door. Alongside monetary tightening, Jakarta has intensified inter-ministerial and inter-regional orchestration through the Central and Regional Inflation Control Teams (TPIP and TPID).
This institutional framework connects the Bank of Indonesia, technical ministries, regional governments, the state logistics agency (BULOG) and private distributors. Reflecting the “total football” strategy, the success of this model does not rely on a single player, but on the synchronized execution of all institutional actors.
To be sure, other nations have instituted supply-side interventions. India uses buffer stocks through the Food Corporation of India to stabilize wheat and rice. The US periodically uses its strategic oil reserve; and European countries have used price caps and energy subsidies.
However, Indonesia’s particular advantage lies in structural integration. In many economies, these interventions are reactive and canceled within various ministries.
In contrast, Indonesia has formalized an institutional bridge linking independent monetary policy with supply-side logistics. The central bank maintains its mandate, but it does not fight supply chain fires alone.
The data underscores the efficacy of this strategy. The Central Statistics Agency (BPS) recorded Indonesia’s headline annual inflation in June 2026 at 3.34%, with core inflation at 2.76%. Despite fuel adjustments and rising transport costs, anchored core inflation indicates that public expectations remain stable.
Therefore, price stability is being achieved not simply through the destruction of demand, but by mitigating the spread of cost-push across sectors.
New Policy Plan for Developing Asia
Looking ahead, Jakarta is shifting its inflation strategy from reactive crisis management to long-term capacity building and food security. The underlying philosophy is clear: supply-side shocks must be prevented before they show up in market prices.
This paradigm shift has profound implications for the rest of developing Asia. Many regional economies share common vulnerabilities: heavy reliance on energy imports, acute exposure to climate-induced agricultural shocks, and logistical bottlenecks.
Under these conditions, reliance on interest rates as the sole remedy risks causing severe economic pain without curing the underlying disease.
While institutional structures such as TPIP and TPID cannot be blindly copied, the underlying principle is a universal lesson for the region: when supply disruptions dominate the economic landscape, interagency coordination is as vital as monetary policy.
In an era defined by trade fragmentation, geopolitical instability and climate crises, inflation control can no longer be judged strictly by a central bank’s ability to manipulate interest rates.
Success now depends on a country’s capacity to orchestrate monetary, fiscal, agricultural and logistics policies into a unified front. The future of price stability lies beyond simple inflation targeting; requires inflationary governance.
Rabiul Misa is a junior analyst at Bank Indonesia. His work focuses on monetary economics, payment systems, financial inclusion, MSME development and public policy. His commentary has appeared in Kompas.id, Kompas.com, Tribun News, ANTARA News and Kumparan, covering topics including monetary policy, cross-border payments, digital finance, MSME development and regional economic development.
