Abstract: National inflation is influenced by regional inflation of selected cities in Indonesia. It implies that the success of policy to control national inflation depends on the success of controlling regional inflation in Indonesia. Furthermore, the sources of inflation may not only come from demand side but also from supply side. Thus, policy to control inflation requires cooperation between monetary policy by the central bank and government fiscal policy. Understanding the determinants of regional inflation in Indonesia is necessary for effective and well-targeted inflation stability policy. This study aims to analyze the determinants of regional inflation in 45 cities of Indonesia year 2003-2012. By using Generalized Least Square (GLS) panel data method, this research shows that non-monetary factors such as own-source revenue (Pendapatan Asli Daerah, or PAD), minimum wages, labour productivity, and road infrastructure significantly affect regional inflation in Indonesia.

Keywords: Inflation, Non Monetary Factors, Regional Economy.