THE IMPACT OF FUEL PRICES, MONEY SUPPLY (M2), AND GROSS DOMESTIC PRODUCT ON INFLATION: THE CASE OF INDONESIA

Inflation is one of macroeconomic indicators become an important issue among economists. Inflation is the tendency increase in average price in general (Parkin, 1993). Meanwhile in other side, inflation is a condition which excess demand for goods and services generally (Lerner in Gunawan, 1995). According to (Mankiw, 2000), inflation is rise in all prices. So, a policy related to inflation is a policy relating to price stabilization. Inflation phenomenon in Indonesia actually is not the short phenomenon, that is only happens incidentally (Adwin in Adya Fadhila Annisa, 2011). In fact, the same general problem also happens in other developing countries. The inflation problem in Indonesia is kinds of long-term inflation that caused by structural of economic obstacles that still occur in Indonesia. The economic and stability were influenced by many factors; some of the factors which influence development of economics are the level of inflation rate (Friedman in Adya Fadhila Annisa, 2011). Inflation is an indicator of economic stability which becomes focus and attention in macroeconomics policy so that is growth rate is always afforded to be low and stable (Bank of Indonesia, 2003). For that, Bank of Indonesia has authority to maintain the stability of inflation in order to create expected economic growth, employment expansion, and the availability of good or services to fulfill the people needed