Food prices to rise between 5 and 10 percent next month

Moch. N. Kurniawan, The Jakarta Post, Jakarta

Food prices will increase by between 5 percent and 10 percent once the government raises fuel prices, electricity and telephone rates next month, according to the Indonesian Food and Beverage Association (GAPMMI).

GAPMMI's executive director Thomas Dharmawan said last week that producers will have no choice but to raise food prices to cover rising transport and production costs.

Thomas admitted the increase in transportation and production costs would not reach 10 percent following the rise in fuel price, power and power rates.

But, he said, prices for some food products could be increased by up to 10 percent as producers and retailers would have to make payment easier for buyers.

"Therefore, I can safely say that food prices will increase by between 5 percent and 10 percent," he told the Jakarta Post.

Staple foods such as rice, sugar, eggs, salt, vegetables produced by small farmers may increase by up to 10 percent because being small, farmers have limited opportunities to conduct cost-cutting measures to offset the rising transportation costs, he said.

Food products made by large companies such as biscuits, cakes, bread, ice cream would rise by only 5 percent as the firms would still be able to improve their efficiency to offset the rising transportation and production costs, he added.

Separately, Kustarjono Prodjolalito, executive director of the Indonesian Retailers Association (Aprindo) concurred, adding that not only food products but also the prices for all goods would rise by between 5 percent and 10 percent.

"I think the price increases will be similar to the ones that occurred in June and July (this year) when the government raised both fuel prices and electricity rates," he told the Post.

The government will raise fuel prices by an average 30 percent and electricity rates by an average of 15 percent in January as the consequences of its plan to reduce subsidies.

The government also plans to increase telephone rates next month although it has yet to decide the percentage of the hike.

All proposals have been agreed by the House of Representatives.

The reduction in subsidies is also part of an agreement with the International Monetary Fund.

Analysts fear that the price hike will cause inflation to jump above the 2002 state budget inflation target of 9 percent.

Food prices, beverages climbed by an average 2.38 percent when the government raised fuel prices by an average of 30 percent in June this year, according to the Central Bureau of Statistics.

When the government increased power rates by an average of 17.47 percent in July, food prices rose by 1.96 percent. Food prices increased by 0.46 percent following the second power rate hike of an average of 8.19 percent in October.

Inflation in June rose 1.67 percent from the previous month, in July 2.12 percent and 0.68 percent in October.

Between January and November, inflation reached 10.76 percent, exceeding the 2001 state budget cumulative inflation target of 9.3 percent.