The extent to which Indonesians feel the benefit from the decline in energy prices depends on a myriad of factors, but the ball hasn't moved away from the government's court just yet.

Early into Indonesia's election year, benchmark oil prices have come down to 5-year lows of US$40 per barrel, after nearly reaching $150 just six months ago.

This is welcome news for the majority of Indonesians, besides also the rest of the world and incumbent politicians. Indeed the government has been keen on passing on the decline in oil prices to domestic energy prices, most notably through subsidized transport fuels.

As of mid January, regular gasoline prices have been cut three times and are right back where they were before the 28 percent price increases in June 2008.

Electricity tariffs for industries will also be lowered soon.

But the extent to which the average Indonesian will feel the benefit from these falls in energy prices will also depend on how far the prices of other items in the consumer price basket go down; i.e. the so called reverse-second round effect.

The President was quoted in various media this week calling on entrepreneurs to not just stand still but to lower their selling prices in response to the government's move. But has the government really done its fair share of the deal?

The simplest way to answer this is by analyzing consumer price inflation. Rising inflation erodes the spending power of households as more money is needed to purchase the same basket of goods.

But since the price increases faced by each item in the spending basket are not uniform, we need to see which prices of which goods have increased the most and work from that. It's a good thing the statistics office provides a fairly detailed description about which items contributed most to inflation.

A total of 20 items contributed nearly two thirds of the 11.1 percent inflation rate experienced during last year. Just what items were they?

Half of the list consists of basic foods (such as rice, fish, meat, etc.), which are basic items crucial to everyday nutritional needs of the people. A chunk of the price surge in many of these daily items did occur after the fuel prices went up in 2008, which is actually a puzzle to many observers.

Raw foods are typically not items that need intensive use of energy to produce, although transportation costs from farm to market may comprise a significant component of the price. What is often overlooked is the fact that a portion of the price increases were due to price expectations. This may partly explain why prices are downward sticky. Expectations are difficult to reverse as people rarely believe prices will go down. For example, a look at Bank Indonesia's consumer survey shows inflation expectations easing over the past few months, but the index is still at around 160, not below 100 (the level which indicates expectations that prices will go down).

Policymakers may want to try to figure out how to manage expectations. But in the meantime they should be working on something more tangible.

We haven't mentioned yet that the number one item on the inflation contributory list is housing fuel (kerosene and LPG) and at second place comes transportation costs.

These are items where prices are directly managed by the government. Interestingly enough, only two items on the list are large-scale manufactured products; i.e. cement and cigarettes.

So it does not seem very fair to point the finger at entrepreneurs (especially in the bourgeois or capitalist sense) for not lowering prices. although it may be popular to do so. Think of it this way. The average Indonesian may feel slightly happier to buy a cigarette or a bag of cement at a lower price. But he or she would be far better off if the fare on the bus, which they ride every day, would cost less. And a whole lot happier if prices of LPG, used for cooking everyday meals, were to stop rising each week because of shortages.

So even after cutting fuel prices, the government's jobexactly finished yet. Next on the list comes ensuring the adequate supply of housing fuels (kerosene and LPG) and facilitating cuts in transportation tariffs. A good place to start is by cracking down on the obvious: The reportedly rampant extortion against public transport drivers.

The writer is currently an economist at PT Bank Danamon Indonesia.

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