Jayanty Nada Shofa, Jakarta – Economists fear the sudden price hikes to non-subsidized fuel Pertamax will hurt Indonesia's middle class.

Pertamax prices rose by 32% from Rp 12,300 to Rp 16,250 (about $0.68-$0.90) per liter, effective Wednesday. The increase comes amid the protracted Iran war, which has elevated global crude prices. State-run energy firm Pertamina has kept the government-subsidized fuel Pertalite unchanged. It had also been less than 24 hours since the central bank raised its benchmark interest rate by 25 basis points to 5.50%.

"Double pressure is looming on Indonesia's middle class. As their income stays the same, they are facing rising prices and potentially higher installments," Achmad Nur Hidayat, a senior economist at UPN Veteran Jakarta, said.

A domino effect on logistics, delivery, services, and daily necessities might be on its way, according to the analyst. A family that runs on 30 liters each week will have to bear the additional costs of almost Rp 474,000 ($26.39) a month, which could cover the electricity bill and groceries for the lower-middle class.

Indonesia's middle class was already shrinking before the latest price shocks. From 2019 to 2024, almost 9.5 million people have tumbled out of the category.

"Just because Pertamax is non-subsidized, the government thinks its customers are all well-off," Achmad said.

Poor public transportation systems might have prompted countless workers – including small business owners – to favor private vehicles. Many motorcyclists and cheaper car owners use Pertamax for availability, engine performance, or simply to avoid long queues, according to Achmad.

Think-tank Celios sounded caution about the price hike's impact on the middle class's purchasing power. It will put pressure on the "aspiring middle class," namely, the people who are not poor but have not achieved economic security. It may even fuel massive layoffs in the third quarter. This will leave people with two options: to pay more or switch to the subsidized fuel Pertalite.

"If such a policy doesn't come with raising Pertalite prices, the demand for Pertalite will grow. Not only does this mean a bigger quota, but the fuel subsidies will subsequently swell," Celios economist Nailul Huda said.

The use of QR codes to keep track of Pertalite buyers' eligibility "will only be effective if there are no leakages on the ground". Many people can still get Pertalites outside the traditional gas stations, including the roadside kiosks.

This year, Indonesia has set the Pertalite quota at 29.27 million kiloliters and has already distributed about 23.52% as of March.

Source: https://jakartaglobe.id/business/sudden-pertamax-price-hikes-to-hurt-indonesias-middle-clas