Power rate hike to trigger inflation

Power rate hike to trigger inflation

Photo document of PT PLN power in Penggilingan, East Jakarta. (ANTARA/M. Agung Rajasa)

"If the rupiah depreciates, the prices of capital goods will increase."
Jakarta (ANTARA News) - The planned hike in electricity tariff this year will trigger inflation, according to Latif Adam, an economist from the Indonesian Institute of Sciences (LIPI).

"It will trigger inflation by about 0.2 to 0.3 percent," he said here on Tuesday.

Latif stated that the impact of inflation could be felt from the beginning of the year because, apart from the power tariff hike, there were also other factors that might cause inflation.

"Production costs could increase not only because of electricity tariff hikes, but also due to increased wages for workers," he explained.

He said rising wages and a decline in the value of the rupiah would drive up commodity prices, which in turn would lead to an increase in inflation.

Latif noted that the hike in regional minimum wage by almost 44 percent would burden companies and force them to increase the prices of their goods and services.

A decline in the rupiah`s value would also affect the prices of goods and services, because domestic industries depend heavily on capital goods and imported raw materials.

"If the rupiah depreciates, the prices of capital goods will increase. For industries whose market is mostly domestic, the rupiah`s depreciation would have a bigger impact, which would lead to increased inflation," Latif pointed out.

The government has announced it will raise electricity tariff by approximately 15 percent this year.

It will raise the tariff by 4.3 percent in every quarter of the year, starting from January, Latif stated.

The electricity tariff hike is expected to save the government up to Rp14 trillion and help raise the implementation ratio of the electrification program in Indonesia, he added.