Fuel Price Hike Could Trigger Inflation Surge in North Sumatra by Up to 0.31%
The increase in the price of Pertamax fuel, effective Wednesday (10/6), is considered likely to trigger a surge in the inflation rate in North Sumatra of up to 0.31 percent. This is because the rise in private transportation costs could lead to higher production input costs and will suppress the purchasing power of Pertamax users.
Economist Gunawan Benjamin from the Islamic University of North Sumatra (UISU) stated that the increase in Pertamax prices, which is nearly touching Rp4,000—precisely Rp3,950 per litre—will immediately put strong pressure on the regional inflation rate, especially in the transportation sector.
The rise in Pertamax prices will trigger a significant amount of inflationary pressure, considering that the weighting of Pertamax in inflation formation is greater than that of previous increases in other non-subsidised fuel prices, he said on Wednesday (10/6).
According to Gunawan, the high weighting of this commodity is directly reflected in the massive number of users, who are predominantly middle-class. This Pertamax price increase could also drive fare adjustments across several modes of public transport in the near future.
This impact is increasingly felt given that the use of subsidised Pertalite fuel is tightly regulated by the government. In addition to hitting the transportation sector, Gunawan mentioned that this cost surge will essentially also drive up the prices of food commodities.
Given that the increase in private transportation costs could lead to higher production input costs. This will suppress the purchasing power of Pertamax users. With an increase of up to Rp3,950 per litre, this will heavily determine the amount of public expenditure going forward, he explained.
Another impact that needs close monitoring is the potential migration of consumers from Pertamax to Pertalite. Although the government restricts certain engine class criteria for using Pertalite, the reality on the ground still leaves room for this shift, especially for motorcycle owners. Pertalite is widely sold at retail. The potential for motorcycle users to switch to Pertalite is very high, said Gunawan.
However, the scope for migration for four-wheeled vehicles or private cars is deemed much more limited. This is because the criteria for beneficiaries are more strictly regulated.
Private car owners are also considered unlikely to circumvent this by purchasing retail Pertalite, as the risk is too great, besides considerations of engine performance that keep them using Pertamax.
Facing these high energy consumption costs, Gunawan sees another possibility, where vehicle users will switch to cars or motorcycles with small cylinder capacities (CC) in order to be able to use Pertalite.
However, he cautioned that this consideration is also fraught with risk, as government policy could change at any time. On the other hand, the Pertamax price increase is also seen as prompting the alternative use of electric vehicles (EV) to resurface among the people of North Sumatra.