Mr. Erick, The Economist Said That The Increase In Fuel Prices Should Not Be Too High So That Inflation Does Not Run Wild

JAKARTA – An economic observer from the Indonesian Center of Reform on Economics (CORE) Yusuf Rendy Manilet said that the government's plan to increase the price of fuel oil (BBM) has the potential to raise inflation to a higher level.

In fact, if the discourse is actually realized with a large value, it is not impossible that the inflation target can get out of the way. Moreover, this week will enter the period of Ramadan 2022.

“The price of fuel will be correlated to the inflation rate. If the price of fuel increases by a very significant value, it will certainly raise inflation to a high level. Because at the same time food prices have shown an upward trend," he said when contacted by VOI, Thursday, March 31.

For this reason, Rendy urged the government to carry out a comprehensive calibration, considering that on the other hand, the budget burden (APBN) will be even greater because price volatility continues to widen if the selling value does not adjust.

"We know that subsidies have the potential to increase due to the current increase in energy prices, but of course, the government's concern to pay attention to the subsidy budget is a good initiative, because this will also affect the dynamics of domestic fuel prices later," he said.

For information, the 2022 State Budget Law states that the inflation target this year is 3 percent plus-minus 1 percent. Meanwhile, according to the Central Statistics Agency, the inflation rate in February 2022 on an annual basis (year on year) was 2.03 percent.

This shows that the current inflation rate has been included in the government's target. Keep in mind that this level does not take into account the pressure due to the increase in fuel prices and also the momentum of Ramadan.

Inflation itself needs to be maintained in order to maintain people's purchasing power. A high inflation rate is certainly accompanied by an increasing amount of money in circulation as well as a decrease in the value of the currency itself.

As a result, Bank Indonesia had to absorb liquidity in the market by increasing interest rates. If interest rates soar, it will be increasingly difficult for bank credit to expand, which in turn will result in a stalled economic recovery process.

Separately, Minister of State-Owned Enterprises (BUMN) Erick Thohir said the government would increase the selling price of non-subsidized Pertamax fuel to reduce the budget burden.

"It has been decided that Pertalite will be used as a subsidy, while Pertamax will not. So if Pertamax goes up, I'm sorry," said Erick, as previously reported by the editor.