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Economists, business groups raise alarm over purchasing power
Analysts recommend that the government support the lower- and middle-income segments by expanding direct social aid, creating more job opportunities and avoiding additional taxes that could strain consumers.
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A woman holds money as people shop ahead of Idul Fitri at the Tanah Abang textile market in Jakarta on April 3, 2024. (AFP/Adek Berry)
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conomists and business associations have expressed concern about what they say is a noticeable decline in consumer purchasing power over the past few years.
Pointing to signs including a shrinking middle class, a rising share of expenditure going to groceries and a sharp drop in automotive sales, they urge the government to expand direct social aid, create more formal-sector job opportunities and avoid additional taxes that could put further strain on consumers.
According to the Institute for Economic and Social Research at the University of Indonesia’s Faculty of Economics and Business (LPEM UI), the middle-class segment accounted for 50.7 percent of overall tax revenue last year, underscoring its economic significance.
The middle class increased from 39 million people in 2014 to 60 million in 2018 but has since dropped to 52 million, as of last year. During the same period, the number of individuals whose income is less than middle class but places them above the poverty line, rose from 129 million in 2014 to 144 million last year.
“Between 2018 and 2023, the proportion of vulnerable individuals has increased, while the middle class has decreased, indicating a shift from middle- to lower-income segments,” the institute said in a report published on Tuesday.
Meanwhile, data from Statistic Indonesia’s National Socioeconomic Survey (Susenas) shows that groceries accounted for a larger share of total expenditure among middle- and upper-income earners last year. For the middle class, the portion inched up from 41.1 to 41.3 percent between 2018 and 2023, while among upper-income earners it rose from 13.9 to 15.6 percent.
According to the LPEM UI, a higher grocery spending ratio typically signals weakening purchasing power, while a rise in the portion of non-grocery spending indicates better economic wellbeing.
