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Go Back       IAR Journal of Business Management | IAR J Bus Mng, 2021; 2(1): | Volume:2 Issue:1 ( Feb. 10, 2021 ) : 162-167
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DOI : 10.47310/iarjbm.2021.v02i01.024       Download PDF       HTML       XML

Do Covid-19 And Mass Mobility Restriction Affect Inflation Rate? Empirical Evidence From Indonesia


Article History

Received: 03.01.2021, Revision: 14. 01.2021, Accepted: 31. 01.2021, Published: 10. 02.2021

Author Details

Bagas Brian Pratama, Nurafni Eltivia, and Nur Indah Riwajanti

Authors Affiliations

State Polytechnic of Malang

Abstract: This study explores the impact of the Covid-19 pandemic and government policy in the form of mass mobility restriction (known as PSBB) on inflation rate in Indonesia. This study covers the data of 15 provincial regions collected from official website documents, during March and October 2020 which have most of Covid-19 impact. Data analysis used Microsoft Excel 2018 with a multiple linear regression model. Research findings show that the covid- 19 pandemic and government policies to mass mobility restrictionsignificantly affect the regional inflation rate in Indonesia with an R square value of 10.66%. The pandemic and policies that constrain the mobility of populations have impeded the economic activities of the community. This situation generates low national production as the needs of the population continue to increase, which could lead to mass shortages and an increase in regionally inflationary rate.


Keywords: Covid-19, Pandemic, Restriction of Mobility, Economic downturn, Inflation.


INTRODUCTION

The Corona Virus Disease 19 (Covid-19) outbreak began in early 2020 has become a global biological disaster that has a significant impact on countries in the world today. This phenomenon results in obstruction of all aspects of human life in various fields ranging from economy, social, culture to education, and various other sectors (Firmansyah, 2020). Data from Worldometer (2020) shows that until November, the total number of confirmed COVID-19 cases reached 61 million with a death rate of 1.43 million. This value is substantial so that all governments in the world are very massive in carrying out policies to reduce the number of virus transmission. In Indonesia, particularly, the impact of the Covid-19 pandemic is also felt by all Indonesian people. The Covid-19 pandemic has a domino effect on various significant economic activities such as a decrease in the IHSG, an increase in prices for essential goods, an increase in unemployment and even in the two quarters of this year Indonesia experienced a contraction of economic growth of up to -5% (Muliati, 2020). This condition forces all business people to be creative and innovative to survive this critical condition of Covid-19 (Ahmadian, 2020).

Handayani (2020) explains that the rapid spread of the Covid-19 virus is caused by transmission from one individual to another through body fluids (saliva or nasal water) containing the virus. Moreover, when this virus is attached to an object, it will survive within 1 to several hours even days. Due to one of these considerations, the government established a particular policy to suppress interaction between individuals. Among them is implementing a large-scale social restriction policy which aims to limit the mobility of the people. Mobility is crucial in controlling the rate of transmission of a disease (Rohkmah, 2014). By limiting community mobility, the government hopes to reduce the number of Covid-19 transmission this is because mobility restrictions will limit direct interactions between individuals, where community interaction is one of the reasons for the highest contributor to Covid-19 transmission. However, this limitation of mobility results in disruption of the community's economic system (Nurwati, et al. , 2020). Society becomes unproductive and the production and distribution process is hampered. The obstruction of the economic system has undoubtedly resulted in a decrease in people's purchasing power and limited goods needed by the community.

The weakening of economic processes and distribution flows during a pandemic is one of the main factors that can cause inflation in a region. Previous research from Salam (2020) explained that the Covid-19 pandemic conditions could have high potential to cause inflation, such as during the outbreak during the reign of Caliph Umar RA. Other research from Suwoso, et al. (2020) explained that the Covid-19 pandemic resulted in weakening economic activity in rural areas, especially in the distribution process constrained due to restrictions on community mobility. Toamain (2020) has also conducted a review of inflation in Maluku Province during the Covid-19 pandemic. The results of his research state that this pandemic impacts the level of inflation deflation in the area. Another study of Meyer B., et.all(2020) concluded that the demand shock during the Covid-19 pandemic has a risk to the inflation rate that may occur in the future. Binder (2020) also managed to identify that the Covid-19 pandemic period made inflation challenging to predict.

From some of the above explanation and some references of previous studies, the research time will analyze the effect of the pandemic Covid-19 and limitation of social mobility in the inflation rate in Indonesia. Previous studies have provided separate forecasts and analyzes with a relatively small sample, so they have several drawbacks. Therefore, this study will take measurements with a larger sample, namely 15 provinces in Indonesia, and measure the relationship between these variables directly in the last 7 months of Indonesia's outbreak hit areas. The research was conducted with descriptive quantitative methods using secondary data. This research is expected to provide a more concrete show of the inflation rate's effect during the Covid-19 pandemic. This analysis related to inflation is critical because it is one of the bases for the government and the Central Bank in determining future economic policies (Junaedi, 2020).

LITERATURE REVIEW

The Covid-19 pandemic

Pandemic is a term that describes the state of the spread of a new disease that has spread throughout the world (World Health Organization, 2020). Pandemics occur because of the rapid spread of disease and last for a long time, causing massive and geographically widespread transmission (Handayani et al., 2020). The term pandemic is widely known by referring to a deadly disease that occurs on a large scale and even worldwide, such as in the Middle Ages when the “Black Dead” phenomenon occurred , this reference has since expanded to include diseases whose spread is very massive and covers a broad demographic.

Meanwhile, the Covid-19 pandemic is an epidemic that has recently become an epidemic for almost all countries in the world. This disease is caused by contamination with the SARS-Cov-2 virus which was first identified in the mid-1960s with several classifications. SARS-Cov-2 infection can cause various health problems such as fever, severe fatigue and dry cough, in severe cases, with pneumonia, acute respiratory syndrome, multi-organ failure including stool and death (Gabriella and Annalisa, 2020).

Community Mobility

According to the Big Indonesian Dictionary, mobility is a movement of change that occurs among community members, both physically and socially from one place to another (KBBI, 2017). Mobility represents a condition of increasing the tempo of space and time movements that occur in people's lives to produce an ideal community and environmental relations (Oswin, 2010). The level of mobility shows how much the level of movement of people from one place to another. The higher the mobility level, the higher the level of mobility, the more massive and dense it is. Mobility can also be a benchmark for the community's level of productivity in an area (Nurwati, et al., 2020).

Regional Inflation

Inflation is a condition of rising prices of goods due to several financial factors causing people's purchasing power to decrease (Sudibyo et al., 2020). Inflation is an important indicator in measuring the economic level of a region. According to Endri (2018) inflation is the key in analyzing indicators of the good and bad of a country's economy because it affects the mobilization of funds in society. The increase in prices caused by inflation must receive special treatment by various monetary policies. The government and central bank use the inflation rate as the basis for future economic policy making (Stephani, Suharsono & Suhartono, 2015). Meanwhile, regional inflation discussed in this study reflects the inflation rate in each province in Indonesia.

Hypothesis Development

a. The relationship between the Covid-19 pandemic and regional inflation rates in Indonesia

The Covid-19 pandemic is a mass disease phenomenon globally that affects all lines of people's lives (Muliati, 2020). In the current condition, where the spread of Covid-19 cases continues to increase, it weakens the community's economic conditions (Toamain, 2020). This phenomenon occurs because during the pandemic, most people experienced scarcity in fulfilling their daily needs. The increasing availability of goods and the higher demand side is one of the causes of the increase in inflation value. This is in line with the research results of Armantier , et.all. (2020) which shows that the current Covid-19 pandemic increases the risk of uncertainty in the value of inflation.

Islamic economic thinker, Al-Maqrizi (d.845 / 142) also explained that several factors cause inflation in a region. One of them is Natural Inflation. Natural inflation is inflation that humans cannot avoid because it occurs as a result of natural conditions such as natural disasters and disease outbreaks (Salam, 2020). In this case the Covid-19 pandemic is one of the outbreaks that has occurred and is closely related to inflation theory. Therefore, based on the explanation above, the first hypothesis proposed in this study is as follows:

H1: The Covid-19 pandemic has a significant impact on Regional Inflation Levels in Indonesia

b. Relations mobility against regional inflation in Indonesia.

The spread of the Covid-19 virus is transmitted only by direct transmission of virus specimens. This means that a carrier (infected with a virus) has a very high probability of transmitting the virus to other people (Handayani, 2020). This is the basis for the government to enforce the PSBB (Large-Scale Social Restrictions) policy, the essence of this policy is to limit the activities and mobility of the community. Mobility is essential in spreading the virus, because mobility can put someone in a high-risk situation (Handayani, 2020) .

This limitation on the level of mobility positively affects the economic conditions of the affected communities. Nurwati, et al. (2020) explain that restricting mobilization results in a decrease in the level of community productivity. This decline resulted in the disruption of the three main economic activity processes, namely production, distribution and consumption. In fact, in some areas needs are scarce due to delays in this distribution process (Toamain, 2020). Again, the scarcity of economic goods and the economic problems that occur as an implication of the mobilization restriction policy are the causes for the increase in the value of inflation that can occur. Therefore, based on the explanation above, the second hypothesis proposed is as follows:

H2: The level of community mobility has a significant effect on the regional inflation rate in Indonesia.

RESEARCH METHODOLOGY

This research is a type of quantitative research. Quantitative research uses data in the form of a collection of numbers to be analyzed with specific statistical techniques (Lerche, 2012 : 4). The population used in this study were 33 provinces in Indonesia. The sample selection technique used purposive sampling with the sample qualifications being the areas with the highest Covid-19 spread in Indonesia. The results of the sample selection found 15 provinces with the highest average spread of Covid-19 . The data needed is the number of Covid-19 patients , the level of population mobility, and the consumer price index for each region from March 2020 to October 2020. This period's selection is based on the initial consideration of the spread of the Covid-19 virus in Indonesia in March 2020. Data collection techniques use documentation and literacy studies obtained from the relevant official website .

 The dependent variable in this study was the Covid-19 pandemic as measured by the number of Covid-19 patients with data from covid19.go.id and mobility restrictions as measured by a decrease in population level mobility with data from google mobility report. Meanwhile, the independent variable is the regional inflation rate as measured by each region's consumer price index with data from Bank Indonesia. Data analysis using two analysis techniques. First, by conducting descriptive statistical analysis, this technique aims to describe the data as a whole (Fengju, 2013) . The next analysis technique uses a multiple linear regression model that is used to find the relationship between variable X and variable Y (Rahmawati, 2019) with the Microsoft E xcel 2016 program's help. The regression model used is as follows:

Y = a + b1X1 + b2X2 + e

Where,

Y : Regional Inflation Rate.

b1, b2 : Regression coefficients

X1 : Number of Covid-19 patients.

X2 : The level of mobility of the population.

e : Standard error             

RESULTS AND DISCUSSION

Descriptive Statistical Analysis

Based on the results in table.1, it can be seen that the total data used in this study were 112 data. The minimum value for the consumer price index was 102.6 in the North Sumatra region in April, while the maximum value was 106.3 in the West Java region in October. The average consumer price index is 104.441 with a standard deviation of 0.8299, which means no significant difference in the CPI value between regions. For the variable, the highest number of covid cases was in the Jakarta Province area of ​​33,652 in September, while the minimum addition of Covid-19 cases was in the Aceh area in March. The average addition of Covid-19 cases in regions of Indonesia is 3,043 per month with a standard deviation of 5236,998, which means that there is quite a high difference in the rate of transmission between regions. The variable of the level of mobilization with a minimum value of -2% in the Aceh region in October and the largest decrease in mobility occurred in the West Sumatra region in June which reached -30% . The average decrease in the level of mobility is -12% with a standard deviation of 5.068%.

Table.1 Descriptive Statistical Analysis Results

Image is Available in PDF Format

Source: Data processed (2020)

Multiple Linear Regression Analysis

Table.2 Regression Analysis Results

Image is Available in PDF Format

Source: Data processed (2020)

Based on the results of table .2 above, a linear regression equation can be drawn up, namely, Regional Inflation = 104.0104 + 0.00004X1 + 0.02352X2 + e,

X1 : Covid-19 case             

X2 : Level of mobilization

The regression equation's interpretation above is that if all cases of Covid-19 and the constant rate of population mobilization are 0, the regional inflation rate in Indonesia is 104.01. Furthermore, if the Covid-19 case increases by 1, while other variables are constant, the regional inflation rate will increase by 0.0004. Finally, if the level of mobilization has increased by 1, while other variables are constant, the regional inflation rate will increase by 0.0234.

T-Test (Partial)

In the variable number of cases of Covid-19, the level of significance is 0.001 <0.05, which means that the number of covid cases has a significant effect on the dependent variable on regional inflation. This value also has the same conclusion compared to the t value of 3.323> from the t table (109; 0.05) of 0.676. Meanwhile, the population mobility variable has a significance level of 0.0235 <0.05, which means that population mobility also significantly affects the dependent variable. This conclusion is also following the t value 1.584 which is greater than the t table value of 0.676.

Annova Test (Simultion)

The ANOVA test results in Table 3 show a significance value of F of 0.002 <0.05, which means that the two variables of the addition of the Covid-19 case and the level of population mobility simultaneously (simultaneously) have a significant effect on the regional inflation rate in Indonesia. This is reinforced by the calculated F value of 6.50649> F table (109; 2) of 3.08 which shows the same conclusion.

Table.3 Anova test results

Image is Available in PDF Format

Source: Data processed (2020)

Table 4. Regression Statistics

Image is Available in PDF Format

Source: Data processed (2020)

Based on Table 4, the two variables' effect on the regional inflation rate is 10.66%, while the remaining 89.34% is influenced by other factors not examined in this study.

Discussion

From the various tests that have been carried out, it can be concluded that the first hypothesis, the Covid-19 Pandemic has a significant effect on the Regional Inflation Rate in Indonesia is accepted. This is consistent with several previous studies (Toamain, 2020; Armantier, 2020; Cavalo, 2020) . The inflation rate that rises during this pandemic is closely related to the community's behavior pattern as consumers during the outbreak (Cavalo, 2020). There have been many mass stops in group economic activity during a pandemic like today to minimize social interaction and the spread of the virus (Nurwati, 2020). Because of this, according to Salam (2020), natural resources are neglected. Then export imports are hampered.

The exchange rate of the rupiah against the United States dollar has decreased. Many companies have lowered their employee salaries and many companies have laid off their employees to be unemployed. In contrast, the unemployment rate is a symbol of low national production which can affect economic growth. Low national production results in price increases, price increases will make it difficult for people, especially those with low incomes and regular incomes. The same amount of money is obtained by the number of items that are less than before. This pattern ultimately supports the increase in the value of inflation in various regions and supports this study's results.

The second hypothesis in this study is that the level of community mobility has a significant effect on the level of regional inflation in Indonesia and is also accepted based on the results of various tests presented. The level of community mobility is one indicator of the community's level of productivity in general (Nurwati, 2020). The Covid-19 pandemic has resulted in the government having to limit the mobility of the people. Though the limitation of people's mobility is reduce and eliminate the potential economic opportunities that can be run by the community (Organization for Economic Cooperation and Development, 2010). In various areas the economic process has been disturbed by this policy's existence (Suwoso, 2020). Due to limited human resources and working hours and limited distribution activities, limited production has made various goods needed by the community a step. At the same time, the level of consumption remains high (Toamain, 2020). This can result in rising prices of goods and contribute to an inflation rate more generous than normal conditions.

The influence of the two variables at 10.66% is equivalent to the many other factors that have not been identified in this study that affect the value of inflation. Natural disasters including disease outbreaks are one of several factors that influence the occurrence of inflation or deflation in an area (Ariani, 2018 ). Moreover, inflation is a complex macroeconomic event due to various economic sentiments (Stephani, 2015). Therefore, this percentage contributes a significant effect considering the many factors that influence inflation.

CONCLUSIONS AND SUGGESTIONS

The Covid-19 pandemic conditions that hit the world today have resulted in obstruction of various sectors of people's lives. The significant increase in the number of epidemic cases has made governments in various countries including Indonesia carry out various policies to reduce transmission. One of these policies is the limitation of community mobilization, which has even decreased by 30%. This study concludes that the Covid-19 pandemic and restrictions on community mobility have a significant positive effect on the inflation rate in regions in Indonesia with a significance level of 10.44%. This influence is because the two variables disrupt people's economic activities, thus creating an increase in the possibility of inflation.

With this study's results, some suggestions were given first to local governments always to monitor the development of the Covid-19 case, by considering various policies to reduce transmission. This is because the results of this study illustrate that government policies can significantly affect the economic life of society where mistakes in decision making can hurt society. After all, the difficulties in economic conditions can be one of the motivations for individuals to commit moral violations (Pratama, 2020). The fall in economic conditions due to Covid-19 in the community will affect the community's social life and the possibility of mass chaos (Fasunwon & Akinwande, 2020). This is where the role of the government must be proactive in preventing and overcoming these problems. The next suggestion for further research development is to look for other variables related to various policies during the Covid-19 pandemic, which significantly influence the economy. Further research is also expected to carry out more in-depth investigations of more objects to obtain maximum representation of the results.

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