Consumer confidence dipped in September as the seasonal drought and Ramadhan fasting month nudged up food prices and affected the job market, the latest survey from Danareksa Research Institute (DRI) shows.
Yet the long-term outlook remains positive with consumers believing that things will improve over time, signaling a willingness to spend more on credit over the next six months. Consumers also believe that business and job opportunities will improve as interest rates continue to decline.
The DRI itself is forecasting that the central bank's benchmark interest rate will come down to 9.75 percent by the year end as inflation slows to 5.7 percent. These main economic indicators currently stand at 10.75 percent and 14.55 percent, respectively.
In its latest survey, conducted last month on 1,700 households in six main centers around the country, DRI found that its Consumer Confidence Index had dropped by 2.5 percent to 87.4 points after droughts in several parts of Indonesia clouded the optimism of rural consumers, most notably in West Java.
Weaker economic assessments in the month under review were also driven by fears of rising inflation and concerns over the state of the jobs market.
Jobs are naturally hard to come by at this time of the year, DRI said, as slowing business activity meant that many employers would wait until after the Idul Fitri holiday before taking on new staff.
"Crucially though, there are good reasons for believing that the longer-term upward trend in consumer confidence has not been broken despite the fall in the CCI in September," said DRI head, Purbaya Yudhi Sadewa.
"Drought, after all, is only transitory in nature and will end with the onset of the rainy season. The prices of some goods and services typically soar during the fasting month of Ramadhan, but once Idul Fitri has passed, prices soon return to their normal levels."
Purbaya also pointed out the fact that only the index assessing sentiment toward the current situation had declined, by 6.9 percent to 65.4. By contrast, the components gauging future sentiment remained relatively unchanged, falling only 0.2 percent to 103.8.
Consumer confidence indices are designed to capture moods as regards buying, doing business and employment, typically using the 100-point mark as a benchmark for optimism.
Another indication that the uptrend remains intact is that the decline in consumer confidence has not been uniform across the country, with sentiment toward current conditions actually improving in Central Java, East Java and, most significantly, Jakarta.
Thus, looking ahead over the next six months, consumers remain convinced that economic recovery is taking place driven by cuts interest-rate cuts.
In September, only 19.1 percent of respondents expected rates to increase, the DRI survey showed, as compared to 23.3 percent of the respondents polled in August.
Bank Indonesia cut its key rate again this month as inflation continued to ease, paving the way for lower lending rates ahead, and increased lending and spending.
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