Consumer Confidence Climbs in Indonesia


FEBRUARY 03, 2015

Jakarta. Indonesian consumers grew more optimistic about their economic prospects in January, thanks to the recent fuel price cuts, according to surveys from the central bank and a state-controlled research institute.

Bank Indonesia’s Consumer Confidence Index, which is based on a sample of 4,600 households in 18 major cities in Indonesia, increased by 3.7 points to 120.2 point in January.

A level of more than 100 points generally means consumers are optimistic about the country’s economy.

“The increase was boosted by the rising consumer optimism towards the economics condition in the next six months,” Bank Indonesia said, tautologically, in a report on its survey released on Tuesday.

The central bank added that in addition to consumers’ upbeat outlook about their incomes, they also expect to see price pressure ease significantly in April, thanks to the recent cut fuel prices.

Central bank analysts attribute the increased pace of durable goods purchases to stronger consumers confidence. The index of durable goods purchases increased to 108.2 points from 106.4 points.

Bank Indonesia’s survey also said consumers expressed confidence that more infrastructure projects would break ground under President Joko Widodo’s administration, an investment seen as bearing a multiplier effect on economic growth.

Joko cut the price of low-octane gasoline in January by 13 percent to Rp 7,600 (60 US cents) a liter.

The president also changed the fuel subsidy mechanism to a so-called “fixed scheme” to reduce volatility risks against the fluctuation of oil prices and currency. This month, price is expected to remain the same for consumers, reducing the potential for broader inflationary pressures.

In a similar survey by Danareksa Research Institute, a unit of state-controlled brokerage Danareksa, the Consumer Confidence Index rose 5.4 points to 97.7 points.

DRI’s survey, based on 1,700 household respondents in six major cities across Indonesia, said consumers expected inflationary pressures to ease slightly over the next six months.

Apart from the cut in fuel prices, DRI also attributed a possible decline in inflation due to the onset of the harvest season in February.

Consumers were also more upbeat about the job market in January, DRI’s survey found. They expect the economy to add more jobs and boost wages.

DRI’s survey also found fewer consumers expect higher interest rates over the next six months, while more consumers foresee lower interest rates.

The central bank kept its key interest rate steady at 7.75 percent in January, as it seeks to maintain the rupiah’s attractiveness, amid capital outflows from emerging markets, including Indonesia, and the European Union alike.

Urban consumers were less pessimistic in January about the outlook for the rupiah than a month earlier, DRI’s survey found. The rupiah has been volatile due to the US Federal Reserve’s expected interest rate hike in the coming months, a move expected to cause investors to dump high-yielding, but riskier assets in emerging markets.