Price of goods may jump with power, fuel hikes

Price of goods may jump with power, fuel hikes

JAKARTA (JP): Observers say the price of consumer goods and
other manufacturing products may increase by up to 20 percent if
the government goes ahead with its plan to raise fuel prices,
electricity rates and the value added tax (VAT).

The chairman of the Indonesian Retail Merchants Association,
Hari Darmawan, estimated the rise in power rates and the VAT
would trigger an increase in consumer goods prices in
supermarkets and department stores of between 15 percent and 20
percent.

"The rise cannot be avoided because our operating costs will
also rise if the government proceeds with the plan," he was
quoted by Bisnis Indonesia daily as saying over the weekend.

Indonesian Food and Beverages Association chairman Thomas
Darmawan said the price of food and beverages could increase by
10 percent due to higher operating costs.

"The price increase won't be higher than 10 percent because
the effect of the new government plan would be minimal," he said.

He said, for example, that electricity accounted for only
between 3 percent and 8 percent of companies' operating costs.

Meanwhile, the tire, iron and steel industries are also
planning to increase the prices of their products' when the hike
in electricity rates and the VAT takes effect.

The chairman of the Indonesian Tire Producers Association, A.
Azis Pane, said the new prices would be set 7.5 percent higher
than current prices.

"We cannot increase our prices higher than that ... we know
the purchasing power of the people is still weak," he said,
adding that the industry would reduce its profit margin to
maintain prices at affordable levels.

Indonesian Association of Iron and Steel Producers chairman
Jimmie Soelaeman said the downstream iron industry, which
produces many types of products made with iron and steel, would
increase the prices of their products by a minimum of 10 percent.

The government said on Thursday it would raise fuel prices by
an average of 30 percent and power rates by 20 percent 15, and
raise the VAT to 12.5 percent from 10 percent on June. In
addition, state-owned telecommunications company PT Telkom will
increase domestic telephone rates by about 20 percent in the same
month.

In April, the government changed the pricing of fuel sold to
businesses in a bid to reduce the fuel subsidy. Under the new
pricing scheme, businesses, except fishing companies and foreign
companies involved in oil production and mining, are required to
buy fuel at 50 percent of the international price. Fishing
companies, foreign oil and gas companies and foreign mining
operators are obliged to buy their fuel at the international
price.

The government has yet to announce whether this new fuel price
hike will again affect businesses.

Jimmie of the steel association said the government's plan to
increase fuel prices, electricity rates and the VAT was
unrealistic and could backfire. He said the price hikes could
undercut the government's plan to increase revenue from domestic
sources.

"If the price of fuel and power increases, the prices of goods
will follow," he said. "Consumption will fall ... and in the end
tax revenue will decrease."

A senior executive at the Indonesian Synthetic Fiber Makers
Association, Rizka Bhinekawati, warned that the price hikes could
hit Indonesia's exports, as the hikes would make Indonesian
products less competitive on the international market. (05)