Subsidized Fuel Prices Indonesia Raised due to Oil Price & Rupiah
Despite some protests in Indonesia’s capital city of Jakarta, the Indonesian government raised the price of subsidized low-octane gasoline (premium) from IDR 6,900 (USD $0.53) per liter to IDR 7,400 (USD $0.56) over the weekend (a 7.2 percentage point price increase). Meanwhile, the price of subsidized diesel (solar) was raised from IDR 6,400 (USD $0.49) to IDR 6,900 per liter (+7.8 percent). The price increase was considered necessary as crude oil prices had increased over the past month, while the rupiah continued to depreciate.
Since the start of 2015 the Indonesian government has drastically reduced public spending on fuel subsidies (in a move to free-up funds for structural economic and social development) by scrapping a large chunk of fuel subsidies. Instead, the government now sets prices for subsidized low-octane gasoline and diesel - floating in accordance with international crude oil prices - each month. This reform was made possible thanks to low global crude oil prices since mid-2014, implying that the impact of this reform measure was relatively small (in fact, fuel prices fell after the government reduced fuel subsidies in January 2015 as the subsidized prices had become unnaturally high amid sharply declining oil prices implying that the people were subsidizing the government at gas stations and not vice versa).
The main indicators that determine Indonesia’s monthly-adjusted subsidized fuel prices are international crude oil prices and the performance of the Indonesian rupiah against the US dollar. In terms of geography, there is a difference in subsidized fuel prices as people’s purchasing power is stronger on the islands of Java, Madura and Bali:
Subsidized Fuel Prices in Indonesia:
|Java, Madura, Bali||IDR 7,400||IDR 6,900|
|Other Regions||IDR 7,300||IDR 6,900|
Price per liter
Bank Indonesia's benchmark rupiah rate (Jakarta Interbank Spot Dollar Rate, abbreviated JISDOR) depreciated 1.56 percent to IDR 13,064 per US dollar between 27 February and 27 March 2015.
Indonesian Rupiah versus US Dollar (JISDOR):| Source: Bank Indonesia
There were reports of a relatively small demonstration in North Jakarta (Tanjung Priok) on Sunday, where around 200 workers protested against the price increase, and blocked one entrance way to the local port.
Indonesian Vice President Jusuf Kalla commented on the government’s decision to raise fuel prices by saying that prices of basic goods are unlikely to be affected by the price hike. In February 2015 Indonesian inflation eased to 6.29 percent year-on-year (y/y) - from 6.96 percent (y/y) in the preceding month - amid declining fuel prices as well as declining food prices despite some inflationary pressures caused by higher rice prices. On a month-to-month (m/m) basis, Indonesia recorded 0.36 percent of deflation in February, the second straight month of deflation.
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