In Indonesia's inflation target policy initiated in
By knowing the causes of inflation, it can be used as the basis for controlling inflation in the form of inflation target to maintain economic stability. Brooks in Debelle shows that State which makes the inflation target, the average level and variability of inflation has declined substantially and output growth is higher with a diversity of inflation and lower output. Economic conditions like this better than the opposite.
In Indonesia's inflation target policy initiated in 1999 and the results of the analysis CSIS (various issues), shows Bank Indonesia's inflation target for the year 2000 to 2002 can not be achieved. The failure was caused by increased demand for money, the political situation is uncertain, and the dry season which resulted in higher food prices. In developed countries, food prices and the political situation, it does not significantly affect inflation target, but monetary factors. In the period 1970-1979 the contribution of food inflation reached 57.47 percent and decreased to 31.17 percent in the period 1990-1998. This indicates the development of agriculture and its supporting policies significantly attenuated the increase in food prices that is no longer a source of inflation as the main cause for the period 1960 to 1970. However, because of the strong relationship to other commodities the price of rice, the rice price stabilization remains a strategic part of the economic stabilization (PSE, 2003). According to Gunawan, the tight regulation of food prices in Indonesia led to reduced macroeconomic instability. The same thing happened in several countries, as well as those resulting from the cited studies showing Kannapiran scheme can reduce the stability of commodity prices, macroeconomic instability, but there is some research that creates a bit of fluctuation, especially in the balance of payments and monetary stability. That is because the policy of price stability does not contribute well to the macro-economic management. Research shows that the inflation rate is influenced by the retail real price of rice, the basic price of rice increased more profitable rice farmers, rice consumers still benefit (increased food security), and maintained macroeconomic stability (increased economic growth, reduced unemployment and inflation has decreased), and political parties and government benefits because of political factors (national defense) has strengthened, while increasing the positive impact of fertilizer subsidy increased use of fertilizer, rice productivity, production and supply of rice, rice farm income and consumption, as well as the positive impact on macroeconomic stability and political stability.