Inflation to Hit Nine Percent due to Increased Fuel Prices

TEMPO.CO, Jakarta – Bank Indonesia Governor Agus Martowardojo said the planned fuel price hike at the end of the year could push inflation up to nine percent. The core inflation that can be controlled by monetary authorities until year-end only reaches 5.2 percent. 

“This number does not include the assumption of fuel price hike adjustment,” said Agus on Thursday. 

Bank Indonesia previously projected inflation at the end of 2014 at level 4.5 +- 1 percent. If the government increases fuel prices, inflation at the end of the year may rise by 3.68 percent. This calculation is based on Bank Indonesia’s target projection in 2014. 

Bank Indonesia estimated that every fuel price rise of Rp1,000 per liter, inflation will increase by 1.2 percent. Agus said the soaring inflation would cause problems as long as it incurred healthy fiscal. “But there must be commitment to conducting fiscal reform,” he said. 

Agus, however, acknowleged that the fuel price hike could bring down the budget deficit despite spurring inflation. Since 2011, deficit figures have been swelling as the nation was burdened by the Rp300 trillion fuel subsidy. Agus said the subsidy budget should be allocated to other posts. “This is part of the anticipated reform that the world is looking forward to seeing in Indonesia,” he said.

AISHA SHAIDRA