JAKARTA: A steep hike in Indonesia’s widely used Pertamax petrol has surprised many consumers and raised concerns of further price increases as middle-class households begin to feel the squeeze.
State-owned energy company Pertamina raised the price of its 92-octane petrol on Wednesday (June 10) to 16,250 rupiah (US$0.90) per litre, a 32 per cent increase from 12,300 rupiah previously.
The price hike has been long in the making, driven by a 50 per cent surge in global oil prices since the Iran war and an 8 per cent depreciation of the rupiah against the US dollar since the start of the year.
But the timing – just a day after the central bank raised interest rates by 0.25 percentage point to 5.5 per cent – has left some Indonesians reeling.
The price increase underscores Indonesia’s delicate balancing act between fiscal discipline and protecting consumers, as higher global oil prices, currency weakness and subsidy pressures push the government to gradually adjust fuel prices.
For middle-class households, who are not the primary target of subsidised fuel policies and are highly sensitive to transport costs, the adjustment adds fresh pressure on already strained real incomes.
Leonardo, a 25-year-old corporate worker in Central Jakarta, was among those taken by surprise. When the price hike took effect, he had just returned from a five-day training camp with limited phone access.
“When I opened Instagram, I saw that it had risen to 16,250 rupiah. I thought, wow that’s a huge increase. I was really shocked,” Leonardo, who like many Indonesians goes by only one name, told The Straits Times. He was referring to the 92-octane Pertamax petrol.
Leonardo usually uses Pertamax for his motorcycle commute to work. But after the price hike, he said he plans to switch to Pertalite, a subsidised 90-octane fuel currently priced at 10,000 rupiah per litre.
“It just doesn’t make sense for me to keep buying Pertamax at that price,” he said.
But switching to Pertalite is simply not a viable option for some, including Ramanda Andhika, 35.
“I used to use Pertalite but it damaged my car’s fuel pump. So I don’t want to switch back, because even if I save on petrol, I might end up spending more on repairs and maintenance,” Ramanda told ST.
Long queues have already been observed at many pump stations across the country as motorists switch from Pertamax to Pertalite. For Leonardo, the savings are worth the wait.
“If the line gets too long, I might change my mind, but for now, I’m making the switch,” he said.
Ramanda, who works for a church in South Jakarta and is married with a two-year-old daughter, owns both a car and a motorcycle. He estimates that before the price hike, he spent around1 million rupiah on fuel each month, or roughly 20 per cent of his income.
“I plan to just reduce my car usage as much as I can,” he said. “My worry is that the Pertalite will become very rare, or might even be abolished altogether. If that happens, the price of basic goods will definitely rise.”
Pertamina and Energy Minister Bahlil Lahadalia have repeatedly assured the public that prices for Pertalite and subsidised diesel will not be increased.
“Subsidised fuel and subsidised LPG will not increase (in price). That is the order of the President,” Bahlil told reporters in Lampung on June 10.
Muhammad Rizal Taufikurahman, head of the macroeconomics and finance centre at the Jakarta-based Institute for Development of Economics and Finance, said that the price increase was “inevitable” due to rising fiscal pressure on the state budget from both internal and external factors.
“The price adjustment is a signal that policy orientation is shifting from maintaining growth to maintaining fiscal stability and market confidence,” Rizal told ST.
Finance Minister Purbaya Yudhi Sadewa has said that the Pertamax hike will have a “minimal” effect on the economy at large because the fuel is not used by the public transportation or logistics sector – a view that Rizal disagrees with.
“While Pertamax’s direct impact on inflation is relatively limited, its economic impact is far broader, as its primary users are formal sector workers and the middle class, who have historically been the driving force of domestic consumption,” Rizal said.
With higher fuel costs – taken together with the interest rate hike, higher inflation at 3.08 per cent and pressure from the weakening rupiah – he said real incomes will be eroded while household consumption will weaken, leading to a potential slowdown in the retail and service sectors.
Deni Friawan, an economics researcher at Jakarta-based think tank Centre for Strategic and International Studies, said even if the petrol hike was “inevitable”, the reasoning offers little comfort to those affected.
“In my view, the public has lost confidence because previously, the government kept saying that the economic fundamentals are fine, our fiscal position was sufficient, and so on. Purbaya always says that,” he said.
“This increase shows that everything is not fine.” - The Straits Times/ANN
