From: By Helmi Arman, Economist
A number of statistical indicators appear to suggest that purchasing power is improving, but in Indonesia purchasing power can be a tricky thing to gauge. What does the anecdotal evidence say? Is household purchasing power really recovering?
As interest rates decline and bank lending grows stronger, many economists have been referring to the statistical data to show that purchasing power is indeed improving. A number of leading indicators have been cited as evidence of this.
Some frequently highlighted trends are: 1) the rising growth rate of real M1 -- an inflation-adjusted measure of a money-supply aggregate consisting of currency in circulation and demand deposits; 2) the rebound of the 12-month moving averages of car and motorcycle sales; 3) the strong upward trend in Bank Indonesia's monthly consumer confidence surveys, and 4) the increasing level of remittances from Indonesian workers overseas.
Nevertheless, Indonesia seems just too big and too complicated to accurately depict using economic data alone. Data often provides partial pictures of partial segments of the economy.
For example, car and motorcycle sales represent spending by households in the middle and upper segments of the income scale. Meanwhile, monthly surveys, although random, are based on a sample of only several thousand out of a total of over 50 million Indonesian households!
When it comes to this country, sometimes one has to look at the anecdotal evidence to find the missing pieces of the puzzle. In this respect, the behavior of businesses in the food and consumer product industries is interesting to observe. Food and consumer products are among the basic things that households spend their money on.
So, if businesses in these industries are doing well, it should be a safe bet to say that household purchasing power is doing well too.
Unfortunately the situation on the ground does not exactly provide much cause for jubilation. So, let us look at a number of observations that appear to contradict what the data is showing.
One interesting phenomenon in the food industry is the tendency for some businesses -- in the face of rising costs -- to get their customers to buy things that aren't really what they seem.
Such experiences are common in restaurants and fast-food chains, be they local or Western, in Jakarta and other cities. A classic example is the apparently intentional use of excessive amounts of flour -- flour being the cheaper ingredient -- on batter-coated products.
A chicken fillet served in a restaurant may look to be of customary size, but the actual chicken meat contained in it is getting smaller over time as the meat gets coated with ever more layers of flour. Meanwhile, a pizza may look big, but the width of the area covered by toppings has been dwindling.
Another interesting trick involves the substitution of cheese melt with some yellow mixture of what appears to be flour and mustard, with, of course some real cheese put in to keep the aroma. The mixture looks a lot like cheese and even smells like cheese, so consumers often do not realize they're being served "fake cheese", or keju oplosan as it is known here.
Similar tricks are also prevalent in the packaged food industry. Over time, it's getting harder and harder to find the essence of the food product that one is buying. Purchase a pack of chocolate-chip cookies and you'll find yourself saying, "I see the cookie, but where are the chocolate chips?"
Some businesses seem to be making the most of digital zoom technology by portraying advertised products as vastly inflated versions of the real thing.
One who's lived long enough in Indonesia will notice that while the pictures of food products in adverts are gigantic, the actual products have shrunk in size to only a fraction of what they used to be several years ago. This goes as well for a number of brands selling candy bars and potato chips. Despite rising prices, the products are actually becoming smaller in size over time.
At worst these practices are deceptive; at best they are a desperate attempt to maintain company margins. In the face of increasing costs, businesses appear to have little room to raise prices for fear of hitting their sales figures.
The question economists should ask themselves is: Would all this be happening if purchasing power is really recovering?
Of course, how widespread these underhand practices are is still debatable as no data is readily available. But in spite of that, the signals provided by the anecdotal evidence should not be ignored.
If these practices are truly prevalent, it could be that conventional statistical indicators are only portraying part of the picture, while the big picture is still that of a rapidly growing population with limited job opportunities.
Does such an environment provide solid ground for a recovery in purchasing power? Only time will tell.