By Stefanno Sulaiman and Ananda Teresia
JAKARTA (Reuters) -Indonesia’s government predicts inflation will pick up in the next two months after its weekend decision to raise fuel prices, but would normalise in November and the measure would have minimal impact on economic growth, an official said on Monday.
President Joko Widodo raised subsidised fuel prices by about 30% on Saturday to rein in a ballooning energy subsidy budget, biting the bullet after weeks of deliberation amid risks the move would spark protests by the public.
Deputy finance minister Suahasil Nazara said in a TV interview with CNBC Indonesia the price hike will push up inflation in September and October, but the monthly rate should normalise in November.
“Usually, inflation rises quickly in one or two months and by the third month, it begins to normalise. We’ll keep an eye until the end of the year,” he said, without providing a figure.
The August annual inflation rate was 4.69%, already above Bank Indonesia’s target range for a third straight month, due to high food prices.
Suahasil said the government is maintaining an outlook for economic growth within a range of 5.1% and 5.4%, despite heightening price pressures.
“Given the fact that price pressures had been building for some time this year even before the fuel effect, the degree of broadening in the price effects will be the key thing to watch now,” Wellian Wiranto, an economist with OCBC Bank, said, predicting inflation will top 7% in the coming months.
Rising prices could anger some Indonesians whose lives were just returning to normal after the economic hit from the COVID-19 pandemic.
Workers unions are planning to stage mass protests nationwide on Tuesday. Smaller protests flared up over the weekend in some cities in Sulawesi island, where students burnt tyres on the streets after the fuel price announcement, according to media reports.
Jokowi, as the president is widely known, said on Saturday the price hike was his “last option”, due to pressure building up on the fiscal front.
The energy subsidy budget had already been tripled to 502 trillion rupiah ($33.65 billion) from the original 2022 budget, but even this wouldn’t be enough if prices were kept unchanged, he said.
Suahasil said even after the price hike, the subsidy budget would still swell to around 650 trillion rupiah for 2022, but some of this would be carried over to 2023.
A survey conducted in mid-August, before the price hike, by pollster LSI showed on Sunday Jokowi’s approval rating was at the highest in four years of 72.3%, but nearly 60% of respondents were against any fuel price hike.
($1 = 14,920.0000 rupiah)
(Reporting by Stefanno Sulaiman and Ananda Teresia; Additional reporting by Fransiska Nangoy and Gayatri Suroyo; Editing by Muralikumar Anantharaman)
