Indonesia's parliament has paved the way for a rise in petrol and diesel prices after months of debate and political haggling.

The average 33% hike will reduce the government's ballooning fuel subsidy which has been a major drain on resources.

The move will likely stoke inflation and has sparked protests in recent days.

Opposition parties in parliament vehemently opposed a hike, despite economists saying a rise in fuel prices was critical for this country's future.

There is nothing more politically sensitive than rising prices in Indonesia

Nevertheless, although the decision to raise fuel prices and cut the subsidy bill will be applauded by the international investment community, Indonesians aren't thrilled by the move.

Any increase in prices will lead to a short-term jump in inflation to between 7% and 8% from current levels of approximately 5% - a jump that economists say is a bitter pill but one the country has to swallow.

Already prices of goods have started increasing in local markets in the Indonesian capital Jakarta.

"People have been expecting the price of fuel to go up," said Ade, a street vendor in Jakarta. He sells fried rice to office-goers in the business district to make a living. "So already the price of all the basic food like rice and vegetables has gone up too. Also it is the beginning of the fasting month soon - and prices traditionally go up then too."

There is nothing more politically sensitive than rising prices in Indonesia. Politicians here remember all too well how former president and strongman Suharto stepped down from three decades of ruling the country with an iron fist, after soaring prices prompted huge protests on the streets of Jakarta.

That led to one of the most painful periods in Indonesia's economic history.

(Source: BBC)