There is still good news for the Indonesia economy: Despite facing the ongoing economic downturn, consumer confidence has risen to the highest level in two years.

The Danareksa Consumer Confidence Index (CCI) in March, which posted increases in the last three surveys, has raised hope that consumer spending can bolster the economy while exports come under pressure due to weak global demand.

Note that, previously, the CCI had shown a downtrend from the end of 2007 due to rising food prices.

The CCI fell even further and hit its lowest level in the history of the survey, 65.3 in June 2008, when the government hiked up fuel prices at the end of May 2008.

At that time, 49.6 percent of consumers surveyed cited increases in basic food prices as their major concern denting the local economy in the last three months.

However, the CCI resumed its upward trend again from July 2008, with only a retreat by 3.4 percent in December to 78.6.

By March 2009 it had reached a level of 87.8, the highest since November 2006.

The government's decision to cut the prices of subsidized fuels in December 2008 and January 2009 indeed gave a timely boost to consumer confidence.

As such, consumer purchasing power should improve as well, which should be reflected in the rise of the CCI.

But is this a fair assessment? Are consumers currently satisfied with the prices of goods, especially basic foods?

Danareksa Research Institute (DRI) conducted a consumer confidence survey every month, based on a representative sample of at least 1,700 Indonesian households across six different main areas.

This survey is designed to measure the perception of consumers toward economic conditions, household income and the state of the job market.

This survey also captures the mood of consumers toward buying, and thus helps predict buying patterns.

The survey shows 60.3 percent of the consumers surveyed in March 2009 were not satisfied with food prices, since these consumers still cited increases in basic food prices as their major concern.

The percentage is in fact higher than in June 2008, when the CCI hit its lowest level.

This suggests consumers still take view that prices are still increasing, or at least have not declined.

The survey also shows that in March 2009, the index measuring consumer sentiment toward inflation rose 7.2 percent to 173.7.

We believe this reflects concerns over higher prices of food, which is a component of the Consumer Price Index (CPI), which has been increasing, despite Indonesia going through a period of deflation in the months of December 2008 and January 2009.

Indeed, according to the Central Bureau of Statistics, overall inflation is actually on a downward trend, but food prices are still increasing.

The deflation is actually in the CPI's other component, the transportation sector, as a result of the cut in the subsidized fuel prices.

Against this backdrop, with consumers still taking the view that prices are increasing or at least have not declined, what is the aspect that caused the CCI to increase?

In the survey, consumers cited some main factors that helped their local economy improve in the last three months.

The three main factors that helped consumers' local economy improve were: First, the implementation of private and government projects; second, improvements made to public infrastructure; and third, good harvests.

In March 2009, the improvement in the CCI largely reflects the financial gains enjoyed by consumers living in rural areas, many of whom are now enjoying the harvest.

Meanwhile, improvements to public infrastructure and the implementation of both private sector and government projects also gave a boost to consumer confidence in March.

Interestingly, this survey showed that buying intentions for durable goods has also improved.

In March, the proportion of consumers who expressed the desire to purchase durable goods over the next six months rose to 23.6 percent from 22.2 percent in February.

This is an interesting finding as it suggests consumers do not believe the ongoing economic downturn will have a major impact on their welfare.

Rather, consumers foresee a rosier future with family incomes improving in the months ahead.

Consumers still have a great appetite for spending on durable goods and cited the improvement in their local economy was helped by, among other factors, the implementation of private and government projects, as well as improvements made to public infrastructure.

Thus there is good reason to believe that fiscal and monetary (interest rate cuts) stimuli should be effective in spurring household spending in Indonesia.

We believe consumer spending, which is reflected in the CCI, will improve further if the government also improves its efforts to stabilize the prices of goods.

All in all, with healthy household spending, there is a hope that Indonesia will not experience a severe recession this year.

The writer is an economist at Danareksa Research Institute

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