Although inflation in Indonesia has slowed in August, a possible increase in subsidized fuel prices could result in much higher inflation for the rest of this year.
Currently, the Indonesian government is spending Rp502 trillion on subsidizing fuel prices.
That marks a sizeable increase from the initial allocation of 152 trillion rupiahs at the start of the year. Due to the rise global oil prices, the government has had to allocate an additional Rp349 trillion for fuel subsidies.
A number of high-ranking Indonesian government officials, including President Joko Widodo himself, has stated that the burden on the state budget is too high, hinting at a possible increase in subsidized fuel prices.
But according to a number of Indonesian economists, if subsidized fuel prices are increased, inflation in Indonesia could surge to seven point five percent by the end of year, as fuel price hikes will also lead to a rise in food prices as well.