Downgrading: Why the Middle Class Is Choosing Function Over Prestige
Economist and Next Policy director Yusuf Wibisono has commented on the downgrading trend currently being widely discussed amid economic volatility. He said it shows that people—particularly the middle class—are prioritising function over prestige.
Yusuf said that in recent years, despite continued strong economic growth, signs of weakening purchasing power have become increasingly visible. These include quiet or even closed shopping centres, declining turnover at traditional markets, and middle-class households willing to downgrade their lifestyles to save money.
“I see weakening purchasing power not only among lower-income groups, but even more so among the middle class. This is reflected, among other things, in the lifestyle-downgrading trend, in which the middle class now places greater importance on function than prestige. The collapse in the middle class’s purchasing power must be taken seriously because it threatens the achievement of Golden Indonesia 2045,” Yusuf told Republika on Friday (9 October 2026).
He said a large and strong middle class was crucial to achieving high-income-country status. Yet over the past seven years, the middle class has become increasingly fragile and smaller.
The number of people in the middle class fell from 60.8 million (23 per cent of the population) in 2018 to 46.7 million (16.6 per cent) in 2025. People in economically vulnerable groups—those at risk of poverty and aspiring middle-class households—accounted for an increasing share of the economic pyramid, rising from 68.5 per cent in 2018 to 74.5 per cent in 2025. The middle class has greater economic resilience, with income moving beyond subsistence towards discretionary consumption. In Yusuf’s view, its decline therefore weakens consumption and economic growth.
“Creating quality formal jobs on a broad scale is essential to saving the middle class; it cannot be done through short-term fiscal stimulus alone,” he said.
Yusuf said the decline in middle-class purchasing power was closely linked to the diminishing role of the formal sector, not only through layoffs but also through lower-paid jobs. He said deindustrialisation and the formal sector’s reduced role in providing employment had contributed to the middle class’s decline.
Tactical strategy
Syafruddin Karimi, an economist at Andalas University, said downgrading occurs when households replace branded goods with cheaper products, shop less frequently or choose smaller packages to keep spending under control.
The main issue, he said, was not simply the price of goods, but the shrinking amount of discretionary income left after households paid for essentials such as food, housing, education, transport and instalments. Indonesia’s annual inflation stood at 3.28 per cent in September 2026, indicating that prices continued to rise.
“Continued price increases erode purchasing capacity when incomes do not grow at a matching rate. The pressure is felt most by people who earn enough to be ineligible for social assistance but do not have sufficient savings to withstand shocks,” Syafruddin told Republika.
However, he said some consumers deliberately seek more efficient products, so switching to cheaper brands does not always mean that people are becoming poorer. The structural problem arises when productive employment and real wage growth fail to keep pace with the cost of living. If this continues for a long time, savings that were initially temporary become an adjustment to living standards.
“At that point, downgrading becomes a sign of household economic vulnerability,” he said.
Syafruddin said downgrading was a rational tactical strategy for the middle class to maintain financial resilience. Choosing cheaper brands, delaying purchases of durable goods or switching to more affordable services can free up money for education, healthcare, loan repayments and emergency savings.
“This strategy also shows that consumers are becoming more disciplined in assessing the value of every rupiah. However, its effectiveness depends on which expenses are cut,” he said.
Syafruddin added that downgrading could indicate weaker consumption or purchasing power, but was not necessarily conclusive evidence.
“Downgrading may indicate pressure on purchasing power, but it is not sufficient on its own to prove that Indonesians’ purchasing power as a whole has fallen. Consumers may also switch brands because alternative products have improved in quality or because shopping habits have become more efficient,” he said.
Looking ahead, Syafruddin said the outlook for downgrading would depend on the gap between real income growth and rising living costs. If real wages stagnate, formal jobs remain scarce and instalment burdens stay high, consumers are likely to stick with cheaper products even when inflation eases.
“The risk of moving down a class—from the middle class to the aspiring middle class—deserves attention,” he said.
In a scenario of income recovery and higher productivity, consumers could once again improve the quality of their spending without abandoning efficiency. Conversely, prolonged pressure could reduce savings, investment in education and social mobility.
Syafruddin said the government should regularly monitor shifts between spending groups, expand access to quality jobs and reduce the cost of basic services. The future of the middle class depends on the economy’s ability to generate income faster than expenditure pressures rise.
With downgrading now spreading and purchasing power potentially weakening, the government should assess changes in purchase volumes, real wages, per-capita expenditure, savings and instalment burdens across income groups.
“Policy responses should address the sources of pressure: maintain food supplies and manage transport costs, strengthen business competition, and expand high-productivity formal employment. Targeted assistance is needed for vulnerable households without sacrificing fiscal discipline. Success should be measured not simply by busy markets, but by a recovery in people’s ability to afford quality necessities while building savings,” he said.