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Regular people suffering as welfare data worsens
The ongoing domestic economic slowdown has pinched the countryâs lower and middle-classes as food prices soar, income levels drop and more people face the possibility of unemployment, according to a local think-thank
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The ongoing domestic economic slowdown has pinched the country's lower and middle-classes as food prices soar, income levels drop and more people face the possibility of unemployment, according to a local think-thank.
A study by the Institute for Development of Economics and Finance (INDEF) has found that several welfare indicators, including wages, food prices and the unemployment rate all point to a general suffering resulting from the country's sluggish economy, which recently shrunk to its slowest level in six years.
INDEF senior economist Bustanul Arifin said that weak data on those fronts had weakened regular people's purchasing power.
'Household consumption in the second quarter this year decreased to 4.9 percent from 5.1 percent in the first quarter,' he said recently, adding that poverty rate climbed up to 11.5 percent as of March from 10.96 last September.
Volatile food prices in the country's official consumer prices index (CPI) surged 8.97 percent in July, compared with an overall inflation rate of 7.26 percent. While it may reflect rising prices for Idul Fitri festivities, food inflation has so far this year been much higher than overall inflation.
Volatile food prices have gone up by 2.47 percent so far this year up to July, while the headline inflation rate was still at 1.9 percent, data from the Central Statistics Agency (BPS) has revealed.
Business Competition Supervisory Commission (KPPU) head M. Nawir Messi said that the government's inflation target of 5 percent this year would likely be achieved not because of the low prices but because of a weaker purchasing power.
'The central bank's survey, which says prices will go down in six months, is actually a bad sign because that will be triggered by the low purchasing power of customers and decreased confidence instead of balanced prices,' he said.
Meanwhile, real wages in the industrial sector were down by 3.5 percent in the second quarter from the first quarter of this year. The drop was most prevalent in labor intensive sectors, such as the food, garment, printing, rubber and plastics industries, due to lower demand and higher production costs for materials that are imported.
That was against the backdrop of a sharp drop in the rupiah, which has weakened 12 percent against the US dollar so far this year, the worst performing currency in the region after Malaysian ringgit.
The unemployment rate is also projected to climb up from 7.15 percent in the first half of last year to 7.5 percent this year because of slowing growth in tradable sectors such as in the manufacturing and mining industries.
Plummeting commodity prices have caused some commodity-reliant regions in the archipelago to suffer more compared with those whose economic movers are the manufacturing or professional sectors. The commodity-driven regions are usually located outside of Java and often include Kalimantan, Sulawesi, Sumatera and Nusa Tenggara.
Furthermore, the government's infrastructure push will unlikely give a significant boost to the country's weak economy in the second half of the year, according to Nawir.
'Government spending contributes only 8.5 to 9 percent to the value of the gross domestic product. The number is not significant compared to household spending and investment,' he explained.
Nawir said that the only solution to boost the economy was by restoring public confidence through consistent and coherent government policies. 'Businesspeople need certainty because business plans are made for the long term,' he said.
Southeast Asia's largest economy grew 4.7 percent in the second quarter of this year, the weakest rate of growth since the third quarter of 2009. (prm)
