Economic Policy Responses to Inflation and Income Inequality: Evidence from Indonesia

Abstract

Inflation and income inequality are two interconnected economic challenges that can affect household welfare, purchasing power, and the distribution of economic opportunities. This article aims to examine economic policy responses to inflation and income inequality in Indonesia, with particular attention to fiscal policy, monetary policy, social protection, and food-price stabilization. This study uses a literature review method to examine recent evidence on inflation management and income distribution in Indonesia. The findings indicate that policy coordination between monetary and fiscal authorities has contributed to maintaining price stability, while social protection and food-price interventions can reduce the welfare effects of inflation on vulnerable households. However, monetary tightening may have distributional consequences, particularly for households that depend heavily on wages, while persistent differences in access to assets and economic opportunities continue to influence inequality. Therefore, effective policy responses require coordination between price stability, household protection, and policies that support inclusive income growth.