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Hike in online ojek fares may trigger high inflation, Indef predicts

Tempo - August 12, 2022

Bisnis.Com, Jakarta – An economist from the Institute for Development of Economic and Finance (Indef) Nailul Huda predicted that the increase in online ojek fares will trigger high inflation.

"The inflation rate of transportation as of July 2022 is quite high. It's 6.65 percent on the annual basis, the second highest after food, beverages, and tobacco," said Nailul in an official statement, Thursday, August 11, 2022.

According to him, the government's efforts to keep inflation low, such as by allocating fuel subsidies up to food subsidies, are contradictory because the increase in online motorcycle taxi tariff will burden the community. The government, he added, did not consider the impacts of its policy.

The tariff hike will also encourage users to switch to other transportation modes or even private vehicles. "Using private vehicles will increase congestion and economic losses," Nailul argued.

Meanwhile, online transportation is a multi-sided market that allows many types of consumers to be served by a single platform. Thus, what should be considered is not only driver partners but also consumers or passengers.

According to economic law, Nailul went on, the demand potentially drops, and the drivers will surely lose because of income drop. "This is contradictory to the welfare goal of driver partners, which is to be achieved with this tariff change," he said.

In addition, the increase in transportation costs can also bring another multiplier effect as it burdens micro, small, and medium enterprises (MSMEs). The food-beverage industry on the MSME scale may raise prices.

Therefore, Nailul believed that the government needs to reconsider the policy on the hike in online ojek tariff and see the elasticity of the product or service. "Nor should this policy lead to a price war between platforms," he concluded.

Source: https://en.tempo.co/read/1622022/hike-in-online-ojek-fares-may-trigger-high-inflation-indef-predict