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JAKARTA - Indonesia's inflation may jump to 9 percent this year under the impact of the recent rise in the prices of subsidized fuel oils, World Bank economist Ndiame Diop has predicted.
"The higher fuel prices will first have a greater impact on the inflation rate by increasing average annual inflation rate in 2013," he said here on Tuesday.
The fuel price hike was part of fuel subsidy reform that had a short-term negative impact on the economic growth and slowed down the purchasing power of the poor, he said. "The negative impact of the fuel price hike on the purchasing power of the poor will be offset significantly by a package of budget for social assistance," he said.
Yet the impact would not last longer, provided there was anticipation of monetary policy responsive to price pressure, he said. He said the fuel price hike might also reduce the current account deficit by 0.2 percent of the national gross domestic product (GDP) in 2013 compared if the subsidized fuel reform was not launched.
"Only by encouraging more efficient use of imported fuels and raising investors' confidence in Indonesia's fiscal policy can the performance of foreign balance sheet become positive in general," he said.
The Central Statistics Agency (BPS) recorded the calendar inflation rate in the January-June 2013 period at 3.35 percent and year-on-year inflation rate at 5.9 percent, with core component inflation rate reaching 0.32 percent and year-on-year inflation rate 3.98 percent in June.
Under the revised 2013 state budget, the government has set the target of inflation rate for 2013 at 7.2 percent year-on-year, or higher than the assumed inflation rate of 4.9 percent in the state budget due to the recent increase in subsidized fuel prices.
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