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)