Although global crude oil prices have actually rebounded since mid-February 2016 (from below USD $30 per barrel, a 12-year low, to around USD $40 per barrel) one might think Indonesia's fuel prices should be revised upwards instead of downwards. However, there exists a delay in Indonesia's policy-making and developments on the global crude oil market. Therefore, the current fuel price cut, effective per 1 April 2016, is based on sliding international crude oil prices that occurred in Q4-2015. Earlier Indonesian Minister of Energy and Mineral Resources Sudirman Said informed the press that the government will not let premium and diesel fuel prices flow freely in a free market price mechanism in order to safeguard stable prices (throughout the economy). Instead authorities evaluate fuel prices each quarter and, if necessary, adjust these prices in line with global crude oil development.

The reason why the government would like the new fuel prices to remain intact until 31 September 2016 (covering the second and third quarter of the year) is because the upcoming Ramadan (Islamic holy fasting month) and Idul Fitri celebrations (in the June-July period) always trigger severe inflationary pressures in Southeast Asia's largest economy. Indonesia needs to safeguard low and stable inflation because millions of Indonesians live just above the poverty line. An inflationary shock can easily push these people into poverty.

The price of diesel fuel (solar) will fall by 9.7 percent from IDR 5,650 to IDR 5,150 per liter, while the price of premium gasoline, the most popular fuel type in Indonesia, will drop by 7.8 percent from IDR 6,950 to IDR 6,450 per liter per 1 April 2016. The price of kerosene remains unchanged.

Indonesia's Fuel Prices:

Fuel Type
Old Price
(per liter)
New Price¹
(per liter)
Premium IDR 6,950 IDR 6,450
Solar IDR 5,650 IDR 5,150
Pertamax IDR 7,750 IDR 7,550
Pertamax Plus IDR 8,650 IDR 8,450
Pertamina DEX IDR 8,600 IDR 8,400
Pertalite IDR 7,300 IDR 7,100
Biosolar IDR 7,150 IDR 6,950

¹ per 1 April 2016
Source: Investor Daily

The central government has requested transportation tariffs to decline by around three percent after fuel prices fall on Friday (01/04). Reportedly, the regional governments will circulate notices on this issue to transportation companies (this covers transportation on land, sea and rail).

Theory teaches us that lower fuel prices (and subsequent lower transportation costs) boosts people's purchasing power, cuts inflationary pressures (Indonesia's annual inflation rate rose to 4.42 percent in February from 4.14 percent in the preceding month), and curbs the nation's notoriously high logistics costs. However, the positive impact of lower fuel prices is expected to be rather limited. When fuel prices drop by at least ten percent then there will be a significant impact throughout society. However, with premium gasoline (which is widely used by Indonesian consumers) falling by about 7.8 percent tomorrow, the impact is estimated to be limited. Inflation may only drop by 0.3 percent due to this fuel price cut. Moreover, it is difficult for transportation fares to fall considerably after a fuel price cut (but when fuel prices rise, these fares tend to be raised quite rapidly).

Crude Oil Price: