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Inflation Grips Indonesians, Worries Reach Record High

Inflation Grips Indonesians, Worries Reach Record High

WASHINGTON, D.C. -- Rising prices were already straining many Indonesians' budgets before a massive fuel price hike last month sent protesters to the streets and inflation soaring into the double digits. A record percentage reported in March that their standard of living -- all the things they can buy and do -- is getting worse.

Roughly 4 in 10 Indonesians said their living standard is getting worse, which is the highest Gallup has measured in several years. Indonesians have voiced their frustrations in widespread demonstrations against the government's move to cut fuel subsidies and raise prices by about 30%. After a violent, student-led protest in Jakarta on Tuesday, Indonesia's parliament voted to review the government's price hike.

Since the beginning of the year, inflation, driven by higher food and energy prices, has accelerated to levels that Indonesians haven't seen in nearly two years. Thirty-six percent of Indonesians surveyed in March 2008, when inflation was just above 8%, said they were finding it difficult (24%) or very difficult (12%) to live on their present household incomes. These figures are somewhat higher than in 2006 and much higher than in 2007.

The latest fuel hike marks the second time since October 2005 that Indonesia's government has taken what it knows to be an unpopular but necessary measure to combat ballooning fuel subsidies. The 126% fuel price increase in 2005 was much larger than 30% increase last month, but combined with rising food costs and inflation, it may strongly affect the millions of Indonesians who live on less than $2 a day.

Economic Outlook

With so many Indonesians in the grips of financial stress, and growth-inhibiting inflation, it is not surprising that many also have a dour outlook on the economic conditions in their country. Nearly 6 in 10 Indonesians said they perceive economic conditions as getting worse, which is by far the most pessimistic outlook in years.

Indonesia's inflation eased considerably in late 2006 and 2007, and the country enjoyed strong economic growth accompanied by healthy increases in private consumption and investment. This situation is reflected in Indonesians' outlook toward economic conditions last year, which was relatively rosy in comparison with 2006 and current estimations.

Bottom Line

Given Indonesians' already dismal outlook on their standard of living and economy, it raises the question of how much patience they will show with their government -- especially in next year's election -- if high inflation persists as expected. As in 2005, the government is giving Indonesia's poor $1.5 billion in cash handouts over the next year and a half to help stem unrest and ease the financial strain of higher prices. This approach appeared to quell protests then, but double-digit inflation persisted for more than a year afterward.

Survey Methods

Results are based on face-to-face interviews with approximately 1,000 adults living in Indonesia, aged 15 and older, conducted in August 2006, April 2007, and March 2008. For results based on the total sample of adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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