Rising Prices Hit Consumer Confidence

14 04 2008

Consumer Confidence weakened in March. The Consumer Confidence Index (CCI) retreated 4.5% to 76.7, after recording a slight increase in February. Both components of the CCI declined: the Present Situations Index (PSI) fell by a hefty 8.3% to 55.2 while the Expectations Index (EI) declined by 2.7% to 92.9. A number of concerns have weighed on consumers in recent weeks, including rising prices of basic foodstuffs, higher prices of goods, weakness in the job market and natural disasters such as flood.

Nonetheless, consumer confidence improved in two of the six regions surveyed in March. The CCI in Jakarta rose slightly by 0.7% to 82.4 and the CCI in Central Java added 5.9% to 81.2. Of the regions where confidence deteriorated, the biggest decline in the CCI was seen in East Java (where the CCI slipped 12.1% to its lowest ever level of 65.1). Consumers in this province cited an increase in basic foodstuff prices and a lack of jobs as their major concerns.

At the same time, confidence weakened in both rural and urban areas (the CCI for the former group fell by 2.6% to 77.9, while the CCI for the latter group dipped 5.3% to 76.3). As such, it seems that urban consumers are suffering more than rural consumers from the increases in basic foodstuff prices.

By household income, confidence among the low to middle-income households deteriorated fairly significantly in March. Indeed, for households with income levels of between Rp500,000 to Rp700,000/month the CCI slumped 7.9% to 71.4. In contrast, however, high-income households – that is those households with income levels above Rp1.5 million/month – did not express greater pessimism.

Indeed, for this particular income group, the CCI edged up 0.1% to 83.2. Yet this finding is not surprising we believe. After all, the rising foodstuff prices and higher prices of goods placed a larger burden on the middle to low-income households than the high-income households. This is because the latter group spends a much smaller proportion of its income on foodstuffs and other basic goods.

Appraisal of Current Situations: National and Local Economic Conditions Weakened

In March 2008, all components of the Present Situations Index (PSI) declined. One of the three components of the PSI, the component of the PSI measuring sentiment toward current national economic conditions dropped 4.9% to its lowest ever level of 39.2 in March. This reflects consumer dissatisfaction with the way in which the government is tackling the latest economic problems, and in particular, of course, its inability to curtail inflationary pressures.

Meanwhile, after showing a gain in February, the component of the PSI measuring sentiment toward the state of the local economy plunged 9.0% to 76.9. And, in addition, the component of the PSI measuring sentiment toward the state of the current job market also fell. It slumped by 9.6% to a level of just 49.5.

Indeed, about 66.9% of respondents surveyed reported that jobs were “hard to get” compared to 62.8% in February. In March, higher basic foodstuff prices remained a major concern for consumers (especially for those respondents who live in East Java and Central Java). Other concerns were the higher prices of goods in general and a lack of new job openings. Indeed, according to our survey, some 42.0% of respondents claimed that the increases in basic foodstuff prices were mainly to blame for the deteriorating local area economic conditions in the past three months. The other main causes cited were the higher prices of goods (13.6%), job scarcity (13.0%), natural disasters & flooding (9.7%), more expensive fuel and fuel scarcity (12.6%), and crops failure (2.3%).

Assessments of Near-Term Conditions: Becoming More Pessimistic

Looking ahead, consumers are more downbeat. All of the components of the Expectations Index fell in March. Most notably, the consumer outlook on the national economy weakened significantly, since the index dropped by 3.6% to 91.0, or its lowest level since November 2005. According to our survey, about 24.3% of respondents expect national economic conditions to worsen over the near future, in contrast to only 15.3% who expect better economic conditions.

Some 59.7% of respondents expect economic conditions to be normal. Consumers also harbor doubts over the prospects of the local economy. This component of the Expectations Index fell by 3.4% to its lowest level since November 2005 of 96.3. Indeed, according to our survey, the proportion of consumers

who expect local economic conditions to weaken increased from 12.3% to 17.1% in March, in contrast to only 13.5% who expect local economic conditions to improve. Some 69.2% of respondents expect local economic conditions to stay the same.

At the same time, consumers are somewhat concerned that a gloomier outlook for both national and local economic conditions would have a negative impact on both job prospects and incomes (the index measuring sentiment on job prospects retreated 1.8% to 92.6 in March while the index measuring sentiment toward the prospects of family incomes dipped 1.9% to 91.6).

Purchasing Intentions for Durable Goods: Purchasing Intentions Weakened

Buying intentions for durable goods weakened in March. Indeed, the proportion of consumers who plan to buy durable goods over the next six months dropped to a one-year low of 25.0% from 26.6% in February.

Buying intentions declined in five of the ten categories tracked by the survey. Weaker buying intentions were seen in houses (down from 0.6% to 0.4%), land (down from 0.4% to 0.2%), audiovisual equipment (down from 3.9% to 3.0%), and motorcycles (down from 3.9% to 3.0%). Consumers also expressed less desire to renovate their homes as only 1.8% of households expressed plans to renovate their homes in March compared to 2.1% in February.

Nevertheless, buying intentions for cars remained quite high in the March survey. The percentage of consumers who plan to buy automobiles rose to 0.4% from 0.3%. Furthermore, plans to buy gold & jewellery and livestock also remained quite high in March.

Expectations on Key Economic Variables: Confidence toward the Rupiah Strengthened

The index measuring consumer sentiment toward inflation remained unchanged at a high level of 190.4 in March. Indeed, some 92.1% of consumers surveyed expect higher inflation over the near future. The heightened inflationary pressure is reflected in the higher than expected m-o-m inflation of 0.95% in March 2008, as announced by the Central Bureau of Statistics, with higher foodstuff prices driving inflation higher.

Meanwhile, the index measuring consumer sentiment on interest rates stood steady at 116.6 in March. Indeed, in the March 2008 survey, consumers who expect interest rates to remain unchanged in the near term increased to 19.6% from 13.3% in February. However, there are still 23% of consumers who expect interest rates to increase over the next six months against 6.3% who expect them to fall.

In regard to the rupiah, consumers were less downbeat on its near-term prospects. The component measuring sentiment toward the rupiah rose 5.9% to 83.9 in March. Indeed, more respondents than before (10.3% in March vs. 9.0% in February) expect the rupiah to appreciate. Meanwhile, consumer sentiment toward stock prices weakened slightly (the relevant index edged down 0.9% to 107.3) as concerns over a possible US economic recession and high crude oil prices dominated the news.

Confidence in the Government: Dissatisfied with Its Ability to Stabilize the Prices of Goods

The Consumer Confidence toward the Government Index (CCGI) fell further in March. The CCGI is now down for four straight months, slipping 4.3% in March to 89.2, its lowest level since October 2005 when the government decided to hike fuel prices by more than 100 percent. It appears that consumers are still unimpressed with how the present administration is tackling the myriad of problems that the country faces.

The deterioration in confidence toward the government is reflected in declines in all of the components that make up the index. The component measuring the government’s ability to stabilize the price of goods declined the most, sinking 9.7% to its lowest ever level of 60.8 from 67.3 in February. Like before, consumers are dissatisfied with government efforts to stabilize the prices of goods, especially since the prices of basic foodstuff continue to rise.

Of note too was the 4.3% fall in the component of the CCGI measuring confidence in the government’s ability to bring about brisker economic growth. This component of the CCGI fell from 86.6 to its lowest ever level of 82.9 in March. All in all, consumers remain doubtful that the economy can grow quickly enough to generate sufficient new job opportunities in the months ahead.

At the same time, the component of the CCGI measuring sentiment in law enforcement also continues to flounder. This index dived 3.9% to 91.7 since consumers remain dissatisfied with the slow progress of reform in the country’s high judicial institutions. Also on a declining trend was the component of the CCGI gauging sentiment in the government’s ability to provide security and order (this index fell 1.7% to 107.1). Download Full Report



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