CONSECUTIVE DEFLATION AND PURCHASING POWER OF THE MIDDLE-CLASS IN GORONTALO PROVINCE, INDONESIA

This paper aims to explain the phenomenon of consecutive deflation in Gorontalo Province and its impact on the purchasing power of the middle class. This literature review uses data from the Central Bureau of Statistics and Bank Indonesia, which are then analyzed qualitatively to obtain a general picture of the phenomenon of deflation and the purchasing power of the middle-class. This paper concludes that consecutive deflation in Gorontalo Province doesn’t directly reflect a decline in the purchasing power of the middle-class. This condition is more driven by falling food prices due to the bumper harvest and the shift in middle-class consumption patterns from primary to secondary and tertiary spending. The combination of fiscal and monetary policies in the form of lowering bank interest rates and increasing spending on infrastructure, education and health is expected to boost aggregate demand. Subsidies to the manufacturing, hospitality and tourism, energy and construction sectors as well as retail trade are needed to prevent sluggishness due to deflation. Low-interest capital facilities, the creation of local superior export-oriented products as well as land access and tax incentives to attract foreign investment.