Prices of goods to go up after utility rates rise

Prices of goods to go up after utility rates rise

The Jakarta Post, Jakarta

Manufacturers have said the simultaneous increase in fuel prices,
electricity and telephone charges would push production costs up,
which in turn would increase the prices of goods.

"According to our estimate, the price hike would occur in
February," said Thomas Darmawan, chairman of the Association of
Indonesian Food and Beverage Industries (Gapmi).

The government increased on Wednesday electricity rates and
telephone charges, and fuel prices the following day. The move is
part of efforts to significantly reduce expensive government
subsidies and help save ailing utility companies from bankruptcy.

But there are fears that the simultaneous price hikes would
place a greater burden on the people already suffering from years
of economic difficulties.

Thomas said that price hikes in the utilities and fuel
products would push up production expenses such as for packaging
components, raw materials and transportation.

"To cover the higher expenses, manufacturers will eventually
raise the price of their products," he said.

But he added that certain industries might find it difficult
to raise the prices of their goods amid weak purchasing power of
the people and tougher competition from imported products from
neighboring countries. Import tariffs on most products have been
cut down to between zero and 5 percent following the
implementation of the Asean Free Trade Agreement (AFTA) early
this month.

Djimanto of the association of shoe industries (Aprisindo)
also said that shoemakers would have to increase the prices of
their products.

But his concern was that the higher fuel prices and
electricity rates would cut the competitiveness of local
industries in the export markets.

Fuel prices rose by between 3 percent and 22 percent on
Thursday. Automotive diesel suffered the largest price increase
at Rp 1,890, up from Rp 1,550. The prices of the various fuel
products could increase again in the future depending on the
development of the products in the international market.

Meanwhile, electricity rates have been raised by an average 6
percent, and telephone charges by an average of 15 percent.
Electricity rates will increase every quarter this year by an
average of 6 percent.

Speaker of the House of Representatives Akbar Tandjung urged
the government on Thursday to make concerted efforts to minimize
the impact of the fuel price hikes on the prices of goods.

"We expect the government to take measures to limit the effect
of the fuel price hike," he said.

Standard Chartered Bank economist Fauzi Ichsan said that the
inflationary effect of the fuel price hike would only be
significant if the price of oil in the international market soars
significantly.

The government will decide each month the price of fuel
products based on price developments in the neighboring Singapore
market.

Fauzi also said that the simultaneous price increases would
not necessarily reduce domestic consumption, which in turn would
affect the economic growth target, because the government was
planning huge spending for the disadvantaged and the poor. The
funds for the spending will come from the savings generated from
the subsidy cut.

Minister of Energy and Mineral Resources Purnomo Yusgiantoro
said on Thursday that the government planned to provide some Rp 4
trillion -- from an initial Rp 3.1 trillion -- in funds as social
compensation for the poor affected by the increase in fuel
prices.