Beyond the Target: Macroeconomic Determinants of Inflation and Implications for The Creative Economy in Indonesia

Abstract

This study is motivated by the persistent discrepancy between Bank Indonesia's inflation target and actual inflation in Indonesia during the 2019–2024 period. Notable inflation fluctuations - particularly the sharp spike to 5.51% in 2022 driven by global geopolitical conflict, and the unusually low inflation of 1.57% in 2024 reflecting weakened public purchasing power - underscore the need for an in-depth examination of the macroeconomic determinants of inflation. Inflation stability supports the creative economy sector: for several sub-sectors that depend on imported raw materials, exchange rate stability also helps contain fluctuations in production costs. This study aims to determine the short-run and long-run effects of money supply, exports, imports, interest rates, and exchange rates on inflation in Indonesia. A quantitative associative approach was employed using monthly time-series data for the period January 2019 - December 2024 (n = 72 observations), analyzed using the Error Correction Model (ECM) with the assistance of E-Views 10. The results show that money supply has a significant negative effect on inflation in the long run, while exports and interest rates have a significant positive effect in the long run. Imports and exchange rates have a positive but insignificant effect in the long run. In the short run, none of the variables have a significant effect on inflation. These findings indicate that the productive distribution of liquidity by Bank Indonesia has successfully curbed price pressures, while structural export growth and anticipatory interest rate policy are the main drivers of long-run inflation.