Indonesia raises price of widely used fuel by 32%, adds to cost-of-living concerns

JAKARTA - Indonesian state firm Pertamina has raised some fuel prices by almost a third in the first increase since the Iran war began, and the finance minister said there would be limited impact on inflation amid investor concerns about government spending.

The price of 92-octane gasoline, known as Pertamax and widely used by the country's middle class, has been raised to 16,250 rupiah (S$1.16) per litre from 12,300 rupiah per litre, a 32.1 per cent increase.

Pertamax Green, a 95-octane fuel blended with ethanol, has been raised to 17,000 rupiah per litre from 12,900 rupiah per litre, a 31.8 per cent rise.

The Pertamax fuels are normally not subsidised, and it was not known if Pertamina would be compensated for keeping the price unchanged since the war began.

The price rises came after Bank Indonesia unexpectedly raised interest rates for the second time in a month on Tuesday to shore up confidence in the currency and budget data last week showed the cost of subsidies for fuel, power and fertilisers had jumped 208 per cent in May from a year earlier.

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Finance Minister Purbaya Yudhi Sadewa said the inflationary impact of the price rises was expected to be limited because the fuels are not used for public transportation. The annual headline inflation rate accelerated to an eight-month high of 3.08 per cent in May.

DBS Bank senior economist Radhika Rao said the affected fuels accounted for about 7 per cent of domestic fuel sales and 7.5 per cent of energy consumption in the transportation sector in 2023. She said alongside monetary policy adjustments, fiscal policy also needed to adopt a defensive stance to support the economy.

Masgal Carta, a worker in Bandung, West Java, said the sudden price rise was going to further squeeze his finances.

"Honestly, I was quite shocked this morning when I found out that fuel prices had gone up, because my motorbike also uses Pertamax," he said.

"My income has stayed the same, prices of basic goods have already started to rise, and now fuel, our main means of transportation to get to work, has increased suddenly," Masgal told Reuters.

The price of the subsidised 90-octane fuel known as Pertalite was unchanged, Pertamina said.

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