Rupiah Weakens, Import Costs Surge: Businesses Must Reconfigure Production Inputs to Protect Profits

The exchange rate is holding at around Rp17,800 per US dollar, and approximately 70 percent of industrial raw materials are still imported. Efficiently combining labor, capital, and raw materials has now become a critical factor in maintaining competitiveness and business profit.

The weakening of the rupiah, which has persisted throughout most of 2026, is no longer just a figure on a foreign exchange screen. For businesses dependent on imported raw materials, components, and machinery, the pressure on the exchange rate is directly impacting production cost structures.

This condition has forced many companies to recalculate. The question is not merely how many goods to produce, but how to configure the use of labor, capital, and raw materials to keep costs efficient while safeguarding profits.

In early January 2026, the rupiah exchange rate was around Rp16,800 per US dollar. The value then moved to approximately Rp17,500 on May 12 and briefly breached Rp18,000 based on the Bank Indonesia (BI) transaction rate on June 10.

On September 22, 2026, the rupiah was recorded at around Rp17,855 per US dollar, a weakening of 0.78 percent compared to the end of August.

Pressure from Exchange Rates, Interest Rates, and Energy

The pressure faced by the business world does not stem solely from the weakening exchange rate.

To stem capital outflows, Bank Indonesia raised the BI Rate by 100 basis points, from 4.75 percent to 5.75 percent, between May and June 2026. In the Board of Governors Meeting on September 22–23, 2026, the central bank then maintained the benchmark interest rate at the 5.75 percent level to maintain rupiah stability.

Globally, the Federal Reserve also raised the Fed Funds Rate to the 3.75–4.00 percent range in September 2026.

The impact on the business world is layered. Financing costs have become higher for companies purchasing machinery on credit. Obligations in foreign currency swell as the dollar strengthens, while energy costs continue to exert pressure on production and distribution expenses.

In terms of consumer prices, inflation in August 2026 was recorded at 3.19 percent year-on-year (yoy), year on year up from 2.88 percent in July. The food, beverage, and tobacco group was the largest contributor, accounting for approximately 1.13 percent.

Key Data on Current Conditions as of October 3, 2026

Note: September 2026 inflation data is not yet included in the sources used for this article.

Imported Raw Materials as a Vulnerable Point

Dependency on imported raw materials is one of the most vulnerable points when the rupiah weakens.

According to the Indonesian Employers Association (Apindo), approximately 70 percent of national manufacturing raw materials are still imported. Meanwhile, raw materials are estimated to account for about 55–60 percent of total production costs.

This means that rupiah depreciation can directly drive up the cost of goods sold, squeeze profit margins, and in certain conditions, limit a company's ability to expand.

A domino effect is also visible in several sectors.

The rise in naphtha prices, for example, can drive up the price of plastic resin and subsequently spread to the packaging industry and various downstream sectors. Business owners report that the price of plastic raw materials has seen a significant increase, which in turn affects the prices of finished products and packaging used by micro, small, and medium enterprises.

However, the figures for increases in each sector should be read with caution as they represent the views of business owners and do not necessarily apply uniformly across all industries.

CORE Indonesia also warns that commodities with a high level of import dependency have the potential to drive consumer inflation.

Some of these include wheat, almost all of which is met through imports, soybeans, which have a high import dependency, and cotton as a raw material for the textile industry.

Apindo has also warned of the risk of cost-push inflation, which is inflation triggered by rising production costs that then spreads to the prices of goods and services.

The petrochemical, plastic, food and beverage, pharmaceutical, and energy-based manufacturing industries are among the sectors relatively vulnerable to changes in exchange rates and raw material prices.

Isoquant and Isocost Logic: Labor or Machinery?

In managerial economic theory, companies strive to find a combination of inputs capable of producing a certain level of output at the lowest possible cost.

One analytical tool that can be used is the isoquant curve and the isocostline.

The isoquant describes various combinations of production factors capable of producing the same amount of output. Meanwhile, the isocost shows various combinations of inputs that a company can purchase with a certain budget.

The efficiency point can be reached when the isoquant curve is tangent to the isocost line. In this condition, the marginal rate of technical substitution or Marginal Rate of Technical Substitution (MRTS) is equal to the ratio of input prices.

Simply put, this concept can be written as:

MPL / w = MPK / r

When the rupiah weakens, imported machinery and components priced in dollars become more expensive compared to labor paid in rupiah.

In theory, this change in relative prices could cause the optimal input combination to shift toward being more labor-intensive.

However, companies cannot simply replace imported machinery or raw materials with labor or local products. The ability to substitute in each sector varies and is still influenced by the availability of technology, production capacity, labor skills, output targets, market demand, and the law of diminishing returns or diminishing returns.

Efficiency Determines Competitiveness and Selling Price

Production resources are essentially limited. Therefore, companies need to produce maximum output with the most efficient use of inputs.

Proper input management can help suppress variable costs and unit costs, minimize potential losses, and provide greater room for companies to set competitive prices.

Production costs also serve as one of the bases for determining selling prices.

The lower the production cost per unit, the greater the company's flexibility in offering affordable prices without having to sacrifice profit margins.

Conversely, companies that fail to manage input combinations may face a surge in operational costs.

When selling prices are raised to cover cost increases, consumers may potentially switch to competitor products. However, if prices are maintained, profit margins may be further eroded.

High exchange rate volatility also makes production costs more difficult to predict, leading business owners to be cautious in making investment and expansion decisions.

In such situations, companies with more efficient cost structures that have diversified suppliers or use more local raw materials have greater room for adaptation.

Example of Application in a Laundry Business

The principle of input efficiency does not only apply to large companies. Small business owners also face similar decisions.

A laundry business owner, for example, needs to consider whether adding a worker is more cost-effective than buying a new washing machine.

This decision should not be based solely on the price of the machine.

The entrepreneur also needs to account for the latest exchange rate if the machine or its components are related to imports, credit interest rates if the purchase is made through financing, electricity and water costs, maintenance costs, and the productivity that the machine can generate.

Detergents, chemicals, plastic packaging, and machine spare parts can also have direct or indirect links to dollar movements.

Therefore, production cost calculations need to be updated periodically so that input usage decisions are not based on price structures that are no longer relevant.

Steps Business Owners Can Take

Some steps that business owners can consider to deal with rising production costs include:

• Recalculating the cost structure using the latest exchange rate and mapping inputs whose prices are linked to the dollar.

• Diversifying suppliers and seeking alternative local raw materials to reduce dependency on imports.

• Comparing marginal costs between adding labor and adding machinery before expanding capacity.

• Improving energy and water efficiency through operational scheduling and periodic machine maintenance.

• Reviewing selling prices periodically and considering gradual adjustments or service packages so that margins are maintained without losing customers.

Efficiency is Key

Exchange rates, interest rates, inflation, and energy prices continue to move, so business owners can no longer rely on old cost structures when making production decisions.

The weakening of the rupiah shows that macroeconomic changes can quickly enter the production space, from raw material prices to the cost of purchasing machinery.

In such conditions, a company's ability to read changes in input prices and adjust the combination of labor, capital, and raw materials efficiently becomes increasingly important.

For business owners, the issue is not merely choosing between labor or machinery. The real challenge is finding the combination of inputs capable of producing output according to targets at the most efficient cost.

Ultimately, companies that are able to control costs, maintain productivity, and adapt to changes in input prices will have greater room to maintain margins, keep selling prices competitive, and survive amidst economic pressure.

Data Sources

1. Bisnis.com, “US Dollar Exchange Rate BCA, BRI, Mandiri, and BNI Today, September 1 & 15, 2026”.

2. Good News from Indonesia, “Rupiah to Dollar Exchange Rate Today (June 10, 2026)”.

3. Bisnis.com, “Bank Indonesia Maintains BI Rate at 5.75%”, September 23, 2026.

4. Fortune IDN, “Maintaining Rupiah Stability, Bank Indonesia Holds BI-Rate at 5.75 Percent”.

5. CNBC Indonesia, “Rupiah Safe, BI Rate Predicted to Stay Put”, August 18, 2026.

6. BPS via Kontan, iNews, and IDX Channel, August 2026 inflation release.

7. Katadata, “RI Manufacturing Threatened with Decline Due to Weakening Rupiah, 70% of Raw Materials Still Imported”, May 13, 2026.

8. Bisnis.com, “Rupiah Continues to Weaken, Apindo: Manufacturing Industry Margins Under Pressure”, May 13, 2026.

9. Republika, “Production Costs Rise Due to Weakening Rupiah, Industry Faces Difficult Situation”, May 18, 2026.

10. BCA Sekuritas/IQPlus, “CORE: Substitution of Imported Materials an Industry Option to Face Rupiah Weakening”, May 19, 2026.

11. IDX Channel, “Not Just Pressuring Consumer Pockets, Here is the Impact of Rupiah Weakening on Other Sectors”, July 25, 2026.

12. KabarBursa, “Global Pressure Heats Up, Why Bank Indonesia Chooses to Hold Interest Rates at 5.75 Percent”.