Statistics Indonesia (BPS) said the government's plan to cut electricity subsidies for 450 VA and 900 VA households (per 1 January 2016) is likely to lead to a higher inflation and poverty rate. Cutting the electricity subsidy bill is part of government efforts to reduce costly energy subsidies and redirect these funds to productive investments (for example infrastructure development or social welfare programs). Moreover, more than 20 million Indonesians are enjoying subsidized electricity, while they are not classified as (near) poor.
The government of Indonesia only wants to provide electricity subsidies to the 24.7 million poorest Indonesian households. Currently there are 28.59 million people living below the poverty line in Indonesia (March 2015 data), or equivalent to 11.22 percent of the total Indonesian population. There are also still millions of Indonesians who are not connected to the country's electricity grid (the country's electrification ratio was 81.5 percent in late-2014). State-owned utility company Perusahaan Listrik Negara (PLN), which holds a monopoly on electricity distribution in Indonesia, will raise electricity tariffs for 450 VA and 900 VA households starting per 1 January 2016. Earlier in 2015, the government had already terminated subsidies for electricity subscribers with connections of 1,300 VA and 2,200 VA.
Indonesian Poverty and Inequality Statistics:
(% of population)
Source: Statistics Indonesia
BPS stated that electricity spending contributes about 3.7 percent to the consumer price index and therefore higher electricity tariffs will impact on inflation. However, the agency has not yet calculate the exact extent of the impact.
On Monday (02/11), BPS announced Indonesia recorded deflation of 0.08 percent (m/m) in October 2015, in line with expectations, on volatile food price corrections (including various meats and chili varieties). Annual headline inflation eased to 6.25 percent (y/y) in October from 6.83 percent (y/y) in the preceding month.
Inflation in Indonesia:
|Month|| Monthly Growth
| Monthly Growth
| Monthly Growth
Source: Statistics Indonesia (BPS)
Inflation in Indonesia 2008-2014:
(annual percent change)
Source: World Bank