A sharp increase in national health insurance premiums and the tobacco excise amid the country’s sluggish economic growth will affect the sales of consumer goods and reduce the people’s purchasing power, analysts have said.

President Joko “Jokowi” Widodo signed in October a new presidential regulation (Perpres) on healthcare security, stipulating a rise in premiums under the Health Care and Social Security Agency (BPJS Kesehatan) in a bid to help the agency reduce its huge financial deficit.

In the new regulation, the government raised the premium for first-class service by 100 percent to Rp 160,000 (US$11.40) per month per person, while more than doubling the cost for second-class service from Rp 51,000 to Rp 110,000. The government also hiked the premium for third-class service by 64 percent from 25,500 per person per month to Rp 42,000.

BPJS Kesehatan, which manages Indonesia’s national health insurance, has suffered from a financial deficit as its income from premiums is not enough to cover payments for insurance claims.

The hike received a mixed response from the public, with some saying the new premiums were too expensive while others supporting the move as long as services were improved. Analysts are also predicting that the hike could increase inflation in 2020 and hurt the public’s ability to spend.

The changes were made amid growing concerns over the country’s sluggish economic growth.

Global rating agency Moody’s estimated Indonesia’s gross domestic product grew only 4.9 percent last year and would further decline to 4.7 percent in 2020 — the slowest pace since the fourth quarter of 2016 — as weak commodity prices continued to hit the economy hard.

The consumer goods sector will also face a challenge from the tobacco excise hike, which is to go into effect this month.

“We decided to increase the cigarette excise by 23 percent on average, while the retail price will be hiked by 35 percent,” Finance Minister Sri Mulyani Indrawati said in September.

These hikes are expected to affect the country’s inflation rate, projected to be 4.5 percent in 2020, securities firm Samuel Sekuritas research head Suria Dharma told The Jakarta Post on Dec. 19, 2019. The figure is higher than the government’s inflation rate projection of between 2 and 4 percent this year.

The figure is also much higher than the inflation rate in 2019 of 2.72 percent, the lowest figure since 1999.

The high inflation rate would affect the public’s purchasing power this year, BNI Sekuritas equity analyst William Siregar has said.

“The sharp increase in inflation will limit the public’s purchasing power, but there are other factors that could reduce the risk,” he told the Post on Dec. 21, 2019.

He said the average minimum wage increase of 8.7 percent this year, coupled with improving consumer confidence, would still create a positive outlook for the consumer goods industry in 2020.

More positive sentiment is also expected to come from the government’s decision to continue the Family Hope Program, which would help those in the middle-to-lower class segment who were driving consumption in the country, he said.

William was upbeat that the calmer trade situation between the United States and China could help improve the public’s purchasing power.

“Donald Trump will go for reelection this year, so he will find a way to reach a deal with China so the market won’t overreact,” he said.

Such a condition could make the rupiah less sensitive to uncertainties in the global financial market; this could result in a more stable Indonesian currency and improve the ability of consumer goods producers to pay for raw materials, he explained.

But this does not necessarily mean that consumer goods companies will enjoy a challenge-free year in 2020. William expected fiercer competition among them to continue, especially among big players.

To tackle this challenge, several consumer goods players are expected to continue their expansive moves in a bid to maintain market share.

One such player, publicly listed food manufacturing giant PT Indofood Sukses Makmur, would continue to launch new products while increasing its advertising costs, William said.

Although the move is predicted to benefit consumer goods players — especially in the food and beverage segment — the home and personal care segment could struggle this year due to new products being introduced to both the online and offline markets and coming from both overseas brands and smaller domestic ones.

“This will create new choices for the public and it will make it more challenging for existing home and personal care brands,” William said.

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