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Indonesia inflation hits 5.90% after fuel hike

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(Globalpost/GlobalPost)

Indonesia's inflation accelerated in June after the government hiked the price of fuel for the first time since 2008, official data showed Monday.

The increase had been expected after the price of fuel rose by up to 44 percent last month, pushing up the cost of transporting everyday goods and public transport.

The decision to reduce huge fuel subsidies seen as a drag on Southeast Asia's top economy has sparked angry protests across the country.

The consumer price index rose 5.90 percent from a year earlier compared with 5.47 percent in May, according to the Central Statistics Agency.

The increase also puts it above the upper limit of the government's 2013 target range of 3.5-5.5 percent.

However, statistics chief Suryamin, who goes by one name, said "the impact of the change to fuel subsidies was not fully felt in June" as the hike was only implemented on the 22nd.

Economists have warned inflation will likely accelerate to above seven percent in coming months.

The price of a litre of petrol has gone up 44 percent from 4,500 rupiah ($0.46) a litre, one of the cheapest in Asia, to 6,500 rupiah. A litre of diesel rose 22 percent to 5,500 rupiah.

Concern had been growing among international investors about the failure to cut the subsidies, which are blamed for a widening current account deficit, as demand for fuel increases and the government is hit with ever bigger bills.

Economists now expect the central bank to raise its key interest rate next week, after hiking it 25 basis points to 6.00 percent last month.

It was the first increase in more than two years as Bank Indonesia sought to head off the expected rise in inflation and shore up the rupiah. The Indonesian unit has been hit by huge outflows of foreign capital on expectations the US Federal Reserve will end its stimulus drive soon.

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http://www.globalpost.com/dispatch/news/afp/130701/indonesia-inflation-hits-590-after-fuel-hike