THE IMPACT OF INFLATION ON THE PURCHASING POWER OF INDONESIAN SOCIETY

Abstract

Inflation is one of the important economic indicators that can affect the social and economic conditions of society. A general and continuous increase in the prices of goods and services reduces the real value of money and consequently decreases people's ability to obtain goods and services. This study aims to analyze the effect of inflation on the purchasing power of Indonesian society, explain the mechanism linking changes in the price level to consumption capacity, and identify factors that may strengthen or reduce the impact of inflation on purchasing power. The study uses a descriptive qualitative method with a literature-study approach. Data and information are obtained from relevant sources concerning inflation, household income, household consumption, prices of goods and services, and government and Bank Indonesia policies. The review indicates that inflation generally has a negative relationship with purchasing power. When prices increase while nominal income does not rise proportionally, real income declines and households tend to reduce the quantity or quality of goods and services consumed. However, the impact of inflation differs across groups and is influenced by income level, consumption patterns, type of employment, wage changes, savings, debt, and the types of goods experiencing price increases. Therefore, stable inflation control and policies that improve household income are important to maintain the welfare of Indonesian society.