Both Industry minister M.S. Hidayat and Economic minister Hatta Rajasa confirmed that on Friday (21/06) the government will announce the increase in price of subsidized fuel after it had already been approved by the House of Representatives (DPR) last Monday (17/06). Immediately after the announcement, the price of fuel is set to be raised. It has been reported that the government's announcement will be revealed at midnight, implying that the price hike is effective starting from Saturday.
Gasoline prices will rise by 44 percent to IDR 6,500 and diesel by 22 percent to IDR 5,500 per liter. As such, gasoline prices are still sold well below market prices in Indonesia. In fact, the country will still have one of the cheapest fuel prices of Asia. The international market price of gasoline is about IDR 9,800 per liter.
Governor of Indonesia's central bank (Bank Indonesia), Agus Martowardojo, expects inflation to reach two percent (MtM) in the months June, July and August. This high inflation rate is not only the consequence of the increase in price of subsidized fuel but also because of the holy fasting month (Ramadhan) and subsequent Lebaran or Idul Fitri (one of the major religious-inspired holidays in Indonesia). The festivities give rise to higher food consumption and are usually accompanied by higher inflation. To support the poorest segments in the country, the Indonesian government will distribute cash money but only for a four-month period.
The government also stated to make sure that food supplies (such as rice, fruits, vegetables and herbs) will not experience shortages and it will act when entrepreneurs raise prices of their products beyond reasonable limits (for example by revoking permits of importers).
Bambang P.S. Brodjonegoro, head of the Fiscal Policy Agency (Badan Kebijakan Fiskal), said that in 2014 inflation will be back to a normal pace. "This year, inflation will be high due to administered price adjustments and volatile food products." The peak of inflation is expected to occur in July 2013 (during the Ramadhan) according to Brodjonegoro.