Consumer Confidence: Why are Indonesian Consumers more Optimistic?
The central bank of Indonesia (Bank Indonesia) reported that Indonesian consumers are becoming increasingly optimistic about economic prospects and their personal financial situation this year, evidenced by a 5.1 point rise in Bank Indonesia's Consumer Confidence Index to 112.6 points in January 2016. This index is based on a survey, involving 4,600 households in 18 cities across the archipelago (a reading above 100 indicates optimism, while a reading below 100 indicates pessimism).
Bank Indonesia's survey shows that the nation's consumers expect the current pressures on food prices to ease in April due to the start of the harvest season. Statistics Indonesia (BPS) announced on Monday that the January inflation rate rose 0.51 percent (m/m). Head of BPS, Suryamin, said food products accounted for most of the inflationary pressures in that month. Food price inflation tends to peak in the December-January period, due to Christmas and New Year celebrations, and in the June-August period due to Islamic celebrations. In both periods consumers spend more money on items such as food as well as clothes, shoes, bags, etc.
Meanwhile, the biggest drop in price pressures last month came from housing, electricity, gas and fuel. Furthermore, expectations about job availability rose 9.5 points from the preceding month, implying that Indonesian consumers have become more upbeat about the nation's economic growth propsects. Indeed most international and domestic institutions - including the World Bank, International Monetary Fund (IMF) and the government of Indonesia - expect to see gross domestic product (GDP) accelerate to 5.3 percent (y/y) in 2016 from an estimated 4.7 percent (y/y) in 2015 (coming Friday Statistics Indonesia will release Indonesia's official 2015 GDP growth figure). Optimism about an accelerating economy is also based on signs that government-led infrastructure development has finally kicked off in the second half of 2015, while inflation eased significantly in late-2015 (to below 4 percent y/y) after two years characterized by high inflation (over 8 percent y/y) caused by several subsidized fuel price reforms. Lastly, low global oil prices boost confidence that energy prices (fuel and electricity) will not rise in Indonesia.
However, the table below shows that Indonesian consumers were less optimistic in January 2016 compared to the same month in previous years. This is in line with the country's slowing economic growth pace.
Bank Indonesia's Consumer Confidence Index:
| Month | 2012 | 2013 | 2014 |
2015 | 2016 |
| January | 119.2 | 116.2 | 116.7 | 120.2 | 112.6 |
| February | 111.7 | 116.8 | 116.2 | 120.2 | |
| March | 107.3 | 116.8 | 118.2 | 116.9 | |
| April | 102.5 | 113.4 | 113.9 | 107.4 | |
| May | 109.0 | 112.8 | 116.9 | 112.8 | |
| June | 114.4 | 117.1 | 116.3 | 111.3 | |
| July | 113.5 | 108.6 | 119.8 | 109.9 | |
| August | 115.7 | 107.8 | 120.2 | 112.6 | |
| September | 117.7 | 107.1 | 119.8 | 97.5 | |
| October | 119.5 | 109.5 | 120.6 | 99.3 | |
| November | 120.1 | 114.3 | 120.1 | 103.7 | |
| December | 116.4 | 116.5 | 116.5 | 107.5 |
A reading below 100 indicates pessimism, while a reading above 100 indicates optimism. The survey involves approximately 4,600 Indonesian households in 18 cities across the country.
Source: Bank Indonesia