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Gaining new business perspective amid fuel price hike
The consumer price index in Indonesia has begun to increase significantly since the second quarter to the disruptions in energy and food supplies, especially after the Russian invasion of Ukraine.
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Fuel prices in Indonesia (Source/YPC Solidiance)
The need to raise fuel prices has been widely discussed in various sectors, especially after the government announced its annual 2023 budget plan in mid-August. It also has to be taken into account that Indonesia is a net importer of fuel, and its spending is strongly influenced by international oil price developments.
Through our history, inflation has been a major indicator to closely look at when fuel prices spike. Take for example the year 2014, in which social assistance via cash transfers (BLT) was used to curb inflation and help consumers.
With the recently announced plan to increase fuel prices—as government spending on energy subsidies is projected to exceed Rp 500 trillion (US$33.3 billion) the polemic on the ballooning fuel subsidy has been heating up. The government even estimated that energy subsidies could rise further to Rp 700 trillion if the subsidized fuel prices are not raised due to the steady increase in international oil prices.
It must be noted that international oil prices have always been highly volatile, and businesses that are not entitled to subsidized fuels, have been vulnerable to the price fluctuations, as described in the chart on what has happened to fuel prices in Indonesia historically.
Although businesses have been impacted by price hikes for months, the current economic landscape spells out an overall larger impact. Increased prices (inflation) mean workers will need higher wages to account for inflation, otherwise their purchasing power will be eroded and consumer spending will be affected.
