DBS Survey: Inflation changes consumption habits in Indonesia in 2023-2024
Indonesia, 22 Feb 2023 - Indonesia’s consumption per capita continues to increase steadily. Statistics Indonesia (BPS) saw a 3.6% increase in monthly consumption per capita, from IDR1.28 million in September 2021 to IDR1.33 million in March 2022. A survey of more than 700 Indonesian respondents from different income classes conducted by DBS Group Research in November 2022 showed that food consumption increased from 49.2% in 2020 to 50.1% in 2022 due to the stay-at-home order to prevent the spread of COVID-19.
The survey also examined how inflation and the risk of recession changed people’s spending and consumption patterns, not only during the pandemic from 2020-2022 but also during the 2013-2015 inflation. The 8% increase in inflation in July 2013 and December 2014 was triggered by Premium fuel and Diesel price hike in June 2013 and November 2014 and a hike in the Bank Indonesia (BI) rate from 5.75% in January 2013 to 7.5% in December 2015. As a result, Indonesia’s household consumption expenditure declined from 5.7% in early 2013 to 4.9% at the end of 2015. Subsequently, this caused a shift in consumption patterns to non-food products, which increased to 50% and 52.5% in 2014 and 2015, respectively, from 49.3% in 2013, as indicated by the significantly high spending on household appliances.
The year 2023 is predicted to be a gloomy year due to the threat of inflation and recession that has been looming since the end of 2022. DBS Group Research conducted research to predict Indonesia’s consumption patterns in 2023 and 2024. Below are the five findings of the research!
1. Macroeconomic situation remained strong despite higher inflation
This is due to the relaxation of the restrictions on public mobility amid the declining COVID-19 cases. Indonesia’s economy grew 5.7% year-on-year in the third quarter of 2022 compared to 5.4% in the previous quarter. The growth was supported by a surge in investment, a cyclical boost from high commodity prices, as well as rising demand for restocking and resumption of activities in the services sector.
This helped offset the impact of a decline in real wages due to subsidised fuel price hike. The government also expanded subsidies for regional public transport to cushion the impact of fuel price hikes on purchasing power, and provided financial assistance for lower to middle-income households
2. Consumption to slow in 2023 due to rising inflation, based on 2013-2015 trends and the Bank DBS Indonesia's consumer survey results
The period 2013-2015 saw a sharp increase in fuel prices and inflation, causing a decline in consumption with a lag effect of about six months. Similarly, DBS Group Research Economist
Radhika Rao
expects gross domestic product (GDP) to grow 5% in 2023, down from 5.4% in 2022
3. Consumers still worry although inflation eases
DBS Group Research found that inflation concerns are due to fear of rising prices of goods and services, particularly fuel prices and household essentials. Although inflation eased to 5.42% on an annual basis in November (from 5.95% and 5.71% YoY in September and October, respectively), half of the respondents said the price hike increased their expenditure by more than 10%.
4. A majority of respondents feel that inflationary trend will continue in the next six months or longer
To deal with the situation, people will change their spending habits. To cope with the effects of rising inflation, most of the respondents opt to save more, spend less, and look for cheaper alternatives. If this happens, we will see a slowdown in household consumption in 2023
5. Indonesia's consumption trends to change in 2023 and 2024 due to inflation
To change their consumption patterns, a majority of respondents tend to prioritise expenses for daily necessities such as groceries, fuel and household necessities over vacation or clothes. In addition, respondents opt for cheaper alternatives to expensive products in the daily expenditure category and reduce the frequency of consumption of non-discretionary items such as recreation, eating out and clothing.
To read the entire report in PDF format,
click here
.
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