UGM Economist Reminds Government To Be Careful In Raising Fuel Prices: Makes Inflation Rise!

Illustration (Photo: Doc. Antara)

JAKARTA - Gadjah Mada University (UGM) economist Fahmy Radhi reminded the government not to increase the price of subsidized fuel oil (BBM) in the near future.

The reason is that the decision to increase the price of subsidized fuel oil (BBM) can trigger a spike in inflation and make commodity prices also rise. Pertalite is estimated at 0.93 percent. Meanwhile, the increase in the price of Solar is estimated at 1.04 percent, so the inflation contribution to the increase in Pertalite and Solar is estimated to reach 1.97 percent," said Fahmy as quoted by Antara, Tuesday, August 23. In July 2022, the inflation rate has touched 5.2 percent year on year (yoy).

Total inflation when subsidized fuel prices rose, according to him, reached 7.17 percent (yoy).

Fahmy said the inflation rate was much higher than last year's inflation, which was in the range of 3 percent (yoy).

"Inflation of 7.17 percent will worsen people's purchasing power and consumption, so that it will reduce the hard-won economic growth of 5.4 percent," said Fahmy.

"In addition, inflation of 7.17 percent will increase the prices of basic needs, which will increase the burden on the people, especially the poor," he added.

Still said Fahmy, poor people who have never enjoyed fuel subsidies because they do not have a motorized vehicle also have to make sacrifices due to the goodness of fuel prices.

Previously, President Joko Widodo (Jokowi) said that the policy option to be chosen regarding fuel subsidies was not to burden the poor people.

"Indeed, the state budget burden for energy subsidies has increased to IDR 502.4 trillion. However, it should be remembered that the subsidy burden of IDR 502.4 trillion is the total energy subsidy budget consisting of subsidies for fuel, three kilograms of LPG, and electricity," explained Fahmy.

The energy subsidy is calculated based on several assumptions, starting from world oil prices, the exchange rate of the rupiah against the US dollar, and inflation. As of July 31, 2022, the cash outflow for fuel subsidies has only reached IDR 88.7 trillion and subsidies for three kilograms of LPG (Kg) are only IDR 62.7 trillion.

According to Fahmy, the Minister of Finance Sri Mulyani would only take this huge financial burden lightly by increasing the Pertalite quota by 5 million kiloliters (KL).

In addition to real spending on fuel subsidies or cash outflows, continued Fahmy, there is also additional real income or cash inflows from the APBN market due to rising export commodity prices.

"Based on the composition of additional revenues and expenditures in the 2022 State Budget, there is actually no urgency to raise subsidized fuel prices this week, not even this year," he concluded.