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Measures prepared to cushion inflation impact
The Office of the Coordinating Economic Minister will work with regional governments to counter the potential second-round inflationary effect of the fuel-price hikes, vowing to ensure that previous yearsâ overshooting in price levels would not be repeated this year
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he Office of the Coordinating Economic Minister will work with regional governments to counter the potential second-round inflationary effect of the fuel-price hikes, vowing to ensure that previous years' overshooting in price levels would not be repeated this year.
The central government would ensure a sufficient food-supply and rein in possible rises in transportation costs to control inflation levels, Coordinating Economic Minister Sofyan Djalil said in a press briefing on Thursday.
He said that additional rises in inflation caused by the fuel-price hike should be no more than 2.5 percent from the current level of 4.8 percent.
'In the short term, we will manage the food supply and distribution, particularly related to government-controlled commodities,' the minister said in his Jakarta office.
'The Home Affairs Ministry will work in tandem with local governments to ensure that the rise in transportation costs is well-anchored,' Sofyan added.
The inflation spike that occurred after the fuel-price hike in 2013 was attributed to unnecessary overshooting in food prices, with core inflation staying benign.
Last year, inflation for government-controlled commodities and volatile food products soared to 16.7 percent and 11.8 percent, respectively, well above the headline inflation of 8.4 percent.
Sofyan noted that there was a 'structural problem and incorrect policy implementation' in food-supply management by the previous administration, eventually contributing to the spike in price levels last year.
For this year, Bank Indonesia (BI) has estimated that annual inflation could soar to between 7.7 and 8.1 percent after the fuel-price hike, subject to the government's efforts to control transportation costs and food prices.
'The transportation sector could be the most influential component in inflation,' BI senior deputy governor Mirza Adityaswara told reporters on Thursday.
- Central govt to team up with regional administrations to counter 2nd-round inflationary effect from fuel-price hikes
- Govt will ensure rise in transportation costs is well-anchored and food-supply management is improved
In this case, regional governments would play an important role in determining the new transportation tariffs and managing overall inflation, he added.
The Transportation Ministry has stipulated a maximum 10 percent increase in tariff adjustments for public transportation to help operators with increasing operational costs caused by the subsidized fuel-price hike.
However, the proposal has been met with stern opposition by public transport service providers. The Organization of Land Transportation Owners (Organda) demanded a rise of at least 30 percent in tariffs, suggesting its members cease operations if the demand was not met.
While BI has predicted that Indonesia's inflation might soar after the fuel-price hike, economists have said that this may be too pessimistic.
Economists from ANZ Bank said BI's inflation estimate was 'rather high', predicting it would hover at 7.3 percent after the fuel-price hike. Bank of America Merrill Lynch predicted an average inflation of 6.3 percent, Credit Suisse saw inflation at 6.8 percent, while Bank Danamon forecast it to hover at around 7 percent.
'Coordination between ministries to minimize the impact of the fuel-price hike is imperative,' said Bank Danamon economist Dian Ayu Yustina. 'Agriculture and the Trade Ministry could work together securing the food supply to minimize the impact on inflation.'
