Revealing the Real Economic Activity: How Does Ramadan Affect the Retail Prices of Key Food Commodities in Indonesia

Abstract

The economic activity of the Indonesian people is strongly affected by the Islamic events, especially Ramadan.
Economic activity in Indonesia always increases in the month where Ramadan falls. This is mainly because there is a
large increase on the consumption expenditure of Indonesian people in Ramadan. This paper aims to analyze Ramadan
effect on the movement of the retail prices of 10 key food commodities in Indonesia, i.e.: rice, purebred chicken meat,
purebred chicken eggs, beef, red chili, small chili, sugar, cooking oil, flour, and condensed milk. Monthly series of the 10
key food commodities from January 2000 until December 2014 are obtained from BPS Statistics Indonesia.
Ramadan is a moving holiday since it does not always fall in the same period/month every year because of the different
day-length period between Islamic calendars with National calendar. The movement of the moving holiday makes it
difficult to compare retail price data between periods where Ramadan falls. Therefore, the identification of Ramadan
effect along with seasonal adjustment on the series should be done to reveal the true movement of the price behavior
underlying the series and reflects real economic movements without the misleading seasonal changes.
We made seasonal adjustment of the price of several key commodities using X-12 Autoregressive Integrated Moving
Average (ARIMA) method. It is a combination of X-11 method, non-parametric smoothing based on moving averages and
linear regression model with ARIMA time series errors models. We built a special regressor with quadratic ramp up,
quadratic ramp down, and linear model to account for Ramadan effect. The result of the analysis showed that Ramadan is
proven to be statistically significant in affecting the retail prices of several key food commodities in Indonesia. The
influences of Ramadan and predictable seasonal patterns should be removed to reveal the real movement of key food
commodities prices from month to month.
Keywords: ramadan effect, retail prices, key food commodities, seasonal adjustment