Rising Purchasing Pressure: The Lipstick Effect as a Warning Sign of a Potential Economic Crisis?

JAKARTA, KOMPAS.com - The lipstick effect phenomenon cannot be directly linked to predicting an imminent economic crisis. However, its appearance should not be ignored, as it at least reveals that society is experiencing economic pressure, particularly in large purchases.

Indonesian economist and Professor at the Faculty of Economics and Business, University of Indonesia, Budi Frensidy, said the lipstick effect does not automatically signal a major crisis will occur. ‘So, the lipstick effect is a small alarm,’ he told Kompas.com on Tuesday, 19 May 2026.

Frensidy added that the lipstick effect becomes more serious if accompanied by lower savings, rising consumer debt, increasing defaults on pay-later credit, and a softening in demand for durable goods.

As a general rule, the phenomenon occurs when people curb large purchases, such as houses, vehicles, or electronics, but continue to buy small items that provide emotional satisfaction, such as cosmetics, skincare, coffee, food, or cheap entertainment.

In Indonesia, Frensidy noted, this can arise due to higher living costs, wages for some people being under pressure, increased job insecurity, and a stronger self-reward culture, especially because of social media and digital promotions.

In response to the phenomenon, Frensidy urged the public to manage finances more wisely. Buying small items for pleasure is not wrong, so long as it stays within budget. ‘What is dangerous is when small purchases are made too often, using pay later or consumer debt,’ he said. He advised that priorities should remain on basics, mandatory installments, emergency funds, and basic protection. ‘Self-reward is fine, but should not become financial escapism,’ he concluded.