Indonesia increases the price of fuel widely used by 32% and adds to cost of living concerns

Investors are concerned about government spending, so Pertamina raised fuel prices in Indonesia by nearly a third. The finance minister stated that the increase would have a limited impact on inflation. Pertamax, the 92-octane fuel widely used by Indonesia's middle classes, saw its price increase to 16,250 rupiah (US$0.9053) a litre. This is a 32.1% rise.

Pertamax Green is a 95-octane blend of fuel with ethanol. Its price has increased from 12,900?rupiah to 17,000?rupiah, or a rise of 31.8%. Pertamax fuels normally are not subsidised and it wasn't known if Pertamina was compensated for maintaining the same price since the beginning of the war. Price increases came after Bank Indonesia raised interest rates unexpectedly for the second consecutive month on Tuesday in order to boost confidence in the currency. Budget data released last week revealed that the cost of fuel, power and fertiliser subsidies had increased 208% from a year ago. Purbaya Yudhi said that the impact of price increases on inflation was likely to be minimal because fuels aren't used in public transportation. In May, the annual headline inflation rate reached a new eight-month high at 3.08%. Radhika Rao, senior economist at DBS Bank, said that the fuels affected would account for 7% of the domestic fuel market and 7.5% energy consumption by the transportation sector. She added that fiscal policy was also necessary to take a defensive position to support the economy, alongside monetary policy changes. Masgal Carta is a?worker?in Bandung in West Java who said that the sudden rise in price would further strain his finances. He said, "I was shocked to learn that fuel prices have increased, because my motorbike uses Pertamax." Masgal said, "My income is the same. Prices of basic goods are already on the rise. And now, fuel prices, our main means of transportation, have increased suddenly."

Pertamina announced that the price of 90-octane subsidised fuel, known as Pertalite, remained unchanged.

(source: Reuters)