There are at least two main factors pushing prices up. One is the grim prospects for peace in Ukraine, meaning the war will continue to disrupt energy and food supply chains. The other is the annual spike in private consumption before and during Ramadan, which began this year on Sunday, and Idul Fitri, which falls in early May.

These ongoing factors mean the cost of living will likely get higher before it moderates. High inflation has been a common phenomenon around the world in the post-pandemic recovery, and some analysts have predicted that Indonesia’s annual CPI inflation could reach 3.7 percent this year, near the top end of the 2 to 4 percent target range.

Policymakers conventionally have two options to tame inflation: slashing demand or increasing supply. As for the former, Bank Indonesia will not likely bump up its benchmark interest rate until at least sometime in the second quarter as it watches the United States’ monetary moves. The Fed has started raising its interest rates, but if BI raises the interest rate before June, it may weaken the economic recovery.

There is not much the government can do to increase energy and food supplies in the short term. Households will have to accept higher prices for as long as the Ukraine war carries on. And President Joko “Jokowi” Widodo himself has appealed to the people to understand the situation.

But we do not agree with the government’s policy of expanding the fuel subsidy program to high-grade Pertamax (RON 92). The government has stopped subsidizing cooking oil and will instead offer direct cash support for the commodity to the poor. Why not do the same with fuel. Subsidized gasoline is highly vulnerable to abuse and even to export smuggling, as with cooking oil.

Pertamax had, until early this month, floated on market prices because its users are mostly middle- and high-income people. If the government is afraid that too wide a price difference between Pertalite (RON 90) and Pertamax may prompt motorists to shift to Pertalite, it should maintain subsidies only for the budget “Premium” gasoline (RON 88). The Pertalite price should be set closer to its economic cost, and Pertamax should be offered at full market price so that the price changes are gradual.

Motorists who thus far have been accustomed to Pertamax and Pertalite may think twice before shifting to Premium gasoline, as they are aware that the lowest octane fuel could quickly damage their car engines. The most important thing is that the diesel oil subsidy is maintained because of its big impact on the costs of transportation and logistics in general.

The fiscal deficit could exceed the target of 4.85 percent of gross domestic product this year if fuel subsidies are not reformed, and this may jeopardize efforts to bring the deficit below the legally stipulated ceiling of 3 percent by 2023.