Indonesian Households Spend More but Get Less as Purchasing Power Erodes

Jakarta, CNBC Indonesia — How strongly Indonesia’s economy grew in the second quarter of 2026 will become clear when Statistics Indonesia (BPS) releases its latest data on Wednesday next week (5/8/2026).

Behind those figures, household consumption will be one of the determinants of how fast Indonesia’s economy can run. Public spending accounts for more than half of Indonesia’s gross domestic product (GDP) structure and has long been the biggest pillar of economic growth.

In Q1-2026, household consumption contributed around 54.36% of GDP. The component grew 5.52% year on year and was the largest source of growth, contributing 2.94 percentage points of the 5.61% economic expansion.

BPS noted that consumption at the time was supported by Eid al-Fitr momentum, national holidays, holiday allowances (THR), transport discounts, and various government stimulus measures.

However, that impetus may not continue with the same strength into the following quarter.

A BCA Economic & Industry Research report titled “Not Much Defence Against the Inflation Horde”, published on 27 July 2026, shows two consumption indicators moving in opposite directions.

The value of public spending is still rising, but the volume of goods purchased is actually shrinking.

Spending Rises, Goods Purchased Shrink

The report compares BCA’s Consumer Transaction Index with Bank Indonesia’s Real Sales Index.

The Consumer Transaction Index captures consumption in nominal terms, based on transaction value. The Real Sales Index, meanwhile, tracks consumption in real terms, based on volume.

On a three-month moving average basis, the Consumer Transaction Index grew 6.5% year on year. By contrast, the Real Sales Index contracted 4.2%.

This divergence shows that the recent rise in the value of public spending does not entirely come from an increase in the quantity of goods and services consumed.

People are still spending more money, but part of the increase is because the average value of each transaction is becoming more expensive. Households must pay more to maintain the same level of consumption.

Such a condition can indeed support nominal economic growth. Higher transaction values could also help tax revenue and drive demand for bank financing.

However, real GDP growth depends more on the actual quantity of goods and services consumed. If transaction values keep rising while volumes shrink, the resilience of public consumption will become increasingly limited.

This condition can persist as long as households are able to absorb price increases without significantly cutting their spending. The problem is that this ability is starting to erode.

Businesses Squeezed by Rising Production Costs

The pressure is evident from the gap between input and output prices in the manufacturing industry.

In June 2026, Indonesia’s manufacturing input price index surged to 73.8, while the output price index stood at 64.3. At the same time, the new export orders index fell to 40.1.

Raw material prices rising far faster than selling prices are increasingly squeezing corporate profit margins.

Over the past year, companies still held large inventories. Those stocks helped businesses absorb rising costs in the short term, so selling prices to consumers did not immediately spike.

However, those inventories are gradually thinning. When companies buy raw materials again at higher prices, they face two equally painful choices for households.

The first is to raise selling prices and pass the cost increases on to consumers. This would force people to spend more money or buy fewer goods.

The second is to hold back production because demand is not strong enough and margins are narrowing.

Cutting production may be followed by reduced labour needs. That risks suppressing people’s incomes and further weakening purchasing power.

This pressure comes as the government’s fiscal space is also more limited. Still-elevated oil prices could increase subsidy and compensation spending needs, reducing the government’s capacity to provide additional stimulus to protect purchasing power.

In the end, businesses have increasingly little room to absorb cost increases. Some of that pressure is likely to be passed on to the public through higher prices or fewer job opportunities.

Households Start Drawing on Savings

When incomes do not rise as fast as prices, households typically use savings to maintain consumption.

Rupiah deposit growth has indeed started to pick up, especially among lower-tier depositors. Meanwhile, wealthier groups have begun shifting some of their funds into foreign currency deposits.

This pattern reflects a growing tendency to save as a precaution against rising prices. However, accumulated savings are not yet thick enough to serve as a long-term cushion.

Calculations in the BCA report show that Indonesian households’ cumulative excess savings once reached Rp1,675 trillion in March 2024. The figure then steadily declined to minus Rp4,439 trillion in May 2026.

The minus Rp4,439 trillion figure does not mean the public’s savings balance fell by that amount. The calculation is based on the difference between actual deposit growth and the historical trend.

The negative position shows that household deposit growth has fallen far behind the normal pattern. Some of the public is estimated to have continued using savings, and possibly other assets, to maintain spending.

The longer price pressures persist, the less room households have to use savings as a buffer for consumption.

Borrowing Is Also Getting Harder

Another option for people to maintain spending is to take on debt. But this route is also becoming difficult, as borrowing costs and household credit risks are both rising.

The household non-performing loan (NPL) ratio rose from around 2% in September 2024 to 2.6% in May 2026.

Over the same period, the average base rate on consumer credit rose from 10.1% to 10.5%.

Rising NPLs are making banks more cautious about lending to households, while higher interest rates make instalments more expensive for the public.

Banks also must meet businesses’ growing funding needs caused by rising raw material costs. In addition, the banking sector is still expected to support financing for various government priority programmes.

These conditions keep the loan-to-deposit ratio (LDR) elevated. Banks’ capacity to expand consumer credit is thus increasingly constrained.

Households ultimately face pressure from all directions. Prices are rising, savings are thinning, while access to debt is becoming more expensive and tighter.

CNBC Indonesia Research