Impact of an Increase in Final Demand for Regional Inflation

Abstract

Macroeconomic variables that are the issues are growth, inflation, unemployment, and balance of payments. Of the four issues, inflation and unemployment are the two main objects of macroeconomics, because the variables of inflation and unemployment have a direct influence on the people in the region. The purpose of this study are to determine the factors that determine the level of inflation and the impact of increased demand and production costs on regional inflation. Using a fixed effect approach with pooled-cross section data, where the series is from 2004 to 2016 and the cross-section is the province. Estimation techniques using GLS (cross section weights). The results of the analysis show that the inflation rate is influenced positively by the exchange rate, the price of fuel oil (BBM), the salary of civil servants, the money supply and final demand (public consumption, government consumption and investment) of each province. The increase in final demand has an impact on the increase in the inflation rate of the regions with different values. The province where the logistics distribution network is not yet developed and its geographical characteristics are islands, the inflation rate is more sensitive due to the increase in local demand as happened in Bangka Belitung, Jambi, East Nusa Tenggara, Gorontalo, Central Sulawesi, Southeast Sulawesi, Maluku, North Maluku, and West Papua. Repair and development of regional infrastructure is needed in order to reduce logistics costs, so that prices become relatively stable.