Economy and Business

Fuel Price Hike Risks Stagflation

Executive director Bhima Yudhistira of the Center of Economics and Law Studies (CELIOS) said hiking subsidized fuel prices risked pushing the Indonesia economy into stagflation. Also known as recession-inflation, stagflation involves high or rising inflation, slowing growth and high unemployment occurring simultaneously. “The people are obviously not ready for the subsidized fuel price hike, especially because fuel prices affect almost all sectors, including agriculture,” the main source of livelihood among low-income households, he said in a statement on Saturday. A widening trend in consumers’ reluctance to spend could hurt the economy, Bhima added, particularly in sectors like food and beverage as well as logistics. “If this happens, it may [cause] an economic slowdown in those sectors [as] production and operating costs go up while demand goes down,” he said, and that this might in turn lead to a drop in labor demand in the affected sectors. (Jakarta Post)

BI Raises Rate to 3.75%

Bank Indonesia raised Indonesia’s prime rate 25 basis points due to longer term effects of inflation. The last rate hike was in 2018. “The decision to increase interest rates is a preemptive and forward-looking step to mitigate the risk of rising core inflation and inflation expectations due to the increase in nonsubsidized fuel prices and volatile food inflation, as well as strengthening the stability of the rupiah exchange rate,” BI Governor Perry Warjiyo. BI expressed concern that price hikes for nonsubsidized fuel and volatile food items would pass through to core inflation. Perry admitted that BI’s previous calculation had estimated core inflation would remain below 4 percent until the end of 2022, but given the price increases in nonsubsidized fuel and freight, the central bank’s updated projection for full-year core inflation was 4.15 percent. Headline inflation, Perry continued, could reach 5.24 percent by the year-end.

Analog to Digital TV Deadline

The Communications and Information Ministry has said it would stick to its deadline for the analog switch-off (ASO) program, ensuring that the national transition from analog to digital television would be conducted by Nov. 2 this year. As regulated in the Job Creation Law, the ASO program has to be carried out before the end of this year. The ministry previously planned to implement the program in three phases. However, the approach was later shifted to what the ministry has called “multiple ASO”, in which the switching off of analog television would be enacted based on the preparedness of each region.

Parliament Approves RCEP

Indonesia’s Parliament ratified the Regional Comprehensive Economic Partnership agreement (RCEP) an alternative to the US-led TPP making it the latest Southeast Asian nation to join the world’s biggest trade bloc. Lawmakers also ratified a bilateral trade pact with South Korea, hoping to attract investment to develop the electric vehicle and batteries industry in the Southeast Asian country. RCEP, which does not include the US, covers nearly a third of the world’s population and about 30 percent of its gross domestic product. It was initially agreed by leaders of 15 Asia-Pacific countries in November 2020.