Indonesia inflation jumps to 8.36% after fuel price hike

A worker at a state-owned Pertamina petrol station holds money as a motorcycle is filled with subsidised fuel in Jakarta on Oct 31, 2014.  -- PHOTO: REUTERS
A worker at a state-owned Pertamina petrol station holds money as a motorcycle is filled with subsidised fuel in Jakarta on Oct 31, 2014.  -- PHOTO: REUTERS

JAKARTA (AFP) - Indonesia's inflation rate shot up in December and its trade balance swung to a deficit after the country's new president hiked fuel prices by 30 per cent a month earlier, data showed Friday.

December inflation jumped to 8.36 per cent year-on-year from 6.23 per cent in November.

Transportation cost adjustements in December that pushed up food prices during the holiday season were the main reason for the higher-than-expected inflation, the Statistics Agency said.

"Some (companies) adjusted the transportation cost only in December and this is the reason why inflation is that high," said Statistics Agency head Suryamin, who goes by one name.

The 30 per cent increase in the price of diesel and petrol was announced in November, and was aimed at cutting government subsidies that gobble up a huge chunk of the state budget and have sparked investor alarm.

The trade balance also suffered as it swung to a deficit of US$425.7 million from a small surplus of US$20 million in October as prices of commodities, the resource-rich country's key exports, slumped.

"These data are surprising, the inflation is much higher than our expectation, while the trade deficit is bigger than our estimate," David Sumual, chief economist at Indonesia's Bank Central Asia, told AFP.

Adding to the gloomy data, manufacturing activity hit yet another low to weaken further in December as HSBC said in its Purchasing Managers' Index for Indonesia fell to a record low of 47.6. A reading below 50 indicates contraction, while anything above signals growth.

However, economists praised new President Joko Widodo's move this week to scrap the gasoline subsidy and fix the subsidy for diesel fuel for 2015.

Economists have long been calling for Indonesia to reduce its generous fuel subsidies which are blamed for a widening current account deficit, although attempts to cut them are often met with public anger.

Widodo, who took office in November, made reducing the payouts a key election pledge, and has vowed to divert the money to overhauling the country's creaking infrastructure and for programmes to help the poor.