The Central Statistics Agency (BPS) has again announced that the Consumer Price Index (CPI) recorded 0.48 percent month-to-month (mtm) deflation in February 2025. This was the seventh consecutive month of deflation from May 2024 to September 2024, with deflation occurring for five consecutive months, with figures of 0.03 percent (May), 0.08 percent (June), 0.18 percent (July), 0.03 percent (August), and 0.12 percent (September). January 2025 again recorded deflation of 0.76 percent.

This year's deflation in February is considered an anomaly, considering it occurred a month before Ramadan, when public consumption typically increases. In comparison, last February, also leading up to Ramadan, BPS recorded inflation.

BPS explained that the current deflation was primarily caused by a 50 percent electricity tariff discount that occurred in January-February 2025. This reasoning is to refute that this deflationary phenomenon reflects weakening public purchasing power, but rather due to government policy intervention, namely electricity tariff discounts.

The 50 percent electricity tariff discount implemented by the government in January-February 2025 contributed significantly to Indonesia's deflation, primarily because it was included in the regulated price component. This means that the discount on regulated prices, as calculated by the Central Statistics Agency (BPS), helped suppress inflation in the food, beverage, and tobacco category.

However, theoretically, deflation is a condition where the prices of goods and services decrease over a certain period. Deflation can occur for two reasons: an oversupply of goods, leading to lower prices in the market (supply side), or a decline in demand and purchasing power (demand side), leading to under-absorption of goods and services and plummeting prices. Several indicators point to weakening purchasing power.

Signals of Weakening Public Purchasing Power

There are a number of data that can be used as an indication to diagnose the weakening of people's purchasing power, especially from data on sales of consumer goods which are currently experiencing a decline.

First, there was a decline in new motorcycle sales at the start of this year. Data from the Indonesian Motorcycle Industry Association (AISI) at the beginning of 2025 showed that motorcycle sales in January 2025 fell 5.98 percent compared to January 2024. Specifically, motorcycle sales in January 2025 reached 557,191 units, down from 592,658 units in January 2024.

Second, the declining trend in car sales in early 2025. The Association of Indonesian Automotive Industries (Gaikindo) announced a decline in national car sales in January 2025. Referring to the latest data, the total number of wholesale car sales was 61,843 units. This means a decrease of 11.3 percent year-on-year (YoY) in January 2025 compared to the same period in 2024 of 69,758 units. Meanwhile, retail sales (from dealers to consumers) fell 18.6 percent YoY to 63,858 units in January 2025, compared to 78,437 units in the same period in 2024.

These two figures are reinforced by a decline in motor vehicle financing. PT BCA Finance recorded new financing of IDR 3.1 trillion as of January 2025, a 25.8 percent decrease compared to IDR 3.9 trillion in December 2024.

Similarly, Adira Finance data shows that as of January 2025, Adira Finance recorded new vehicle financing of IDR 2.4 trillion. This figure is down compared to the same period the previous year. Correspondingly, the trend in automotive financing, which accounts for 65.79 percent of total financing receivables, has also slowed.

According to OJK data, automotive financing reached IDR 321.7 trillion in November 2024, representing an 8.13 percent annual growth rate, a drastic decrease compared to 2023's 17.55 percent annual growth. This data is also accompanied by an increase in non-performing loans (NPF) among multifinance companies. OJK data shows that the gross NPF ratio of multifinance companies in November 2024 was 2.71 percent. This figure increased compared to 2.60 percent the previous month.

Third, the consumer spending index decreased one week before Ramadan. This can be seen in the spending value index measured by the Economic Team of PT Bank Mandiri Tbk (BMRI) and the spending index measured by the Economic Team of PT Bank Central Asia Tbk (BBCA). The Mandiri Spending Index (MSI) at the end of February 2025 was 236.2. This is lower than the index in mid-February 2025, which nearly reached 250.

Similarly, the consumer spending index compiled by the Economic Team of PT Bank Central Asia Tbk shows slowing growth. The spending index ahead of Ramadan 2025 only grew 2.9 percent year-on-year. The slowdown in spending occurred across all regions of Indonesia, including Sumatra, Kalimantan, Sulawesi, Maluku, and Papua. The slowdown in spending was also evident in Java, Bali, and Nusa Tenggara.

The Mandiri Institute research team also reported a similar trend, noting that the supermarket spending index slowed in the fourth quarter of 2024. The supermarket spending index in early December 2024 was recorded at 600.6. In September 2024, the supermarket spending index peaked at 700. Supermarket spending also declined across all groups, with the lowest falling by 7.1 percentage points among low-income households. The decline was followed by the middle-income household, at 3.8 percentage points, and then by the high-income household, at 1.4 percentage points.

Many argue that the decline in consumer spending in supermarkets is due to a shift in consumer behavior toward online shopping in various marketplaces due to the availability of lower prices, discounts, and cashback. However, Semrush data shows that in January 2025, visits to Tokopedia (Tokopedia.com) fell 4.56 percent month-to-month to 64 million. Visits to Lazada (Lazada.co.id) fell 1.94 percent month-to-month to 43.4 million, and Blibli (Blibli.com) fell 10.52 percent month-to-month to 21.4 million.

For comparison, data from the Digital Center of Economics and Law Studies (Celios) shows that digital transaction flows have increased, but not significantly. The data details that Celios projects that Indonesia's online trade will reach IDR 468.64 trillion in 2024, and IDR 471.01 trillion in 2025.

However, this increase in online transactions has also been accompanied by a rise in demand for "Pay Later" (Pay Later) and online loans (pinjol). According to data from the Financial Services Authority (OJK), credit disbursement through buy now pay later (BNPL) platforms reached IDR 26.69 trillion as of January 2025, representing a 44.19 percent year-on-year growth. This comprised IDR 7.12 trillion from financing companies and IDR 22.57 trillion from banking, with annual growth of 41.9 percent and 44.65 percent, respectively.

Meanwhile, the outstanding balance of financing by the online lending industry, or fintech peer-to-peer lending, as of January 2025 was recorded at IDR 78.5 trillion, representing a 29.94 percent annual growth. This achievement is higher than the 29.14 percent annual growth in December 2024. Consequently, the trend of non-performing loans in online loans is also increasing. According to data from the Financial Services Authority (OJK), non-performing loans in the online lending industry in December 2024 amounted to IDR 2.01 trillion, dominated by individual borrowers, accounting for 74.74 percent. Of this individual portion, borrowers aged 19-34 years old dominated (52.01%) and those aged 35-54 years old (41.49%). This means that the non-performing loan ratio is increasing, with millennials and Generation Z (Gen Z) being the most affected.

Some Indonesian consumers even plan to reduce their spending during Ramadan this year. This is evident in a Populix survey report titled "Shopping Behavior in Ramadan 2025." According to the report, 90 percent of respondents typically purchased food and beverages during previous Ramadans. However, the number of respondents planning to continue purchasing these products during Ramadan 2025 has dropped to 87 percent. Furthermore, 78 percent of respondents previously typically purchased clothing and fashion items.

However, those planning to continue purchasing this product dropped to 55 percent. Similar declines occurred for other product types, such as household furniture, electronics, motor vehicles, and land and buildings.

On the other hand, the public is now increasingly burdened with expenses for paying taxes and contributions. According to data from the Central Statistics Agency (BPS), the portion of public expenditure on taxes and contributions in 2019 was 3.48 percent of total expenditure. By 2024, this portion will increase to 4.53 percent of total expenditure.

The taxes in question include Land and Building Tax (PBB), Motor Vehicle Tax (STNK), and Income Tax (PPh 21). Meanwhile, the contributions in question come in the form of levies, such as neighborhood association (RT/RW) dues, garbage collection, security, and insurance or BPJS (Social Security Agency) dues.

Fourth, declining imports of consumer goods. According to data from the Central Statistics Agency (BPS), imports of consumer goods in January-February 2025 fell 14.24 percent compared to the same period last year, to US$3.11 billion. Imports of consumer goods did not increase even though Ramadan arrived earlier this year, falling in early March 2025. The decline in imports reflects weakening public purchasing power at the start of the year. The government's incentive of a two-month electricity tariff discount was also only temporary.

The weakening of people's purchasing power can also be seen from the decline in the number of travelers for Eid al-Fitr 2025. The results of the National Movement Potential Survey by the Ministry of Transportation (Kemenhub) estimate that the number of travelers for Eid al-Fitr 1446 H or Eid 2025 will be 146.48 million people or around 52 percent of the total population of Indonesia. This estimate is down 24 percent compared to the projection of 193.6 million travelers traveling for Eid 2024. And the decline in the number of travelers for Eid this year has an impact on the decrease in the amount of money circulating in the community.

According to projections from the Indonesian Chamber of Commerce and Industry (Kadin), money circulation during Eid al-Fitr 2025 is expected to decline by 12.28 percent compared to 2024. The assumption is that the 2025 Eid al-Fitr money circulation will be in the range of IDR 137 trillion to IDR 145 trillion, which is still below the 2024 Eid al-Fitr money circulation which reached IDR 157.3 trillion. This prediction is calculated from the number of travelers this year of 146.48 million or equivalent to 36.26 million families, assuming each family has four people and an average of IDR 4 million per family. This is due to the increasing cost of going home, the threat of layoffs, and the burden of expenses for taxes and contributions, which have made people tend to tighten their belts.

Heading into Recession: President Prabowo Needs a Game-Changing Formula

Given all this data, the government cannot simply issue business-as-usual policies to boost purchasing power and encourage recovery. Instead, it needs a policy formula that can be a game-changer to reverse the economic situation. This is because household consumption is the primary driver of Indonesia's economic growth, contributing around 54-55 percent to Gross Domestic Product (GDP). Therefore, a weakening in purchasing power will have a systemic impact on the national economy as a whole. There are several suggestions and inputs that the government can consider to restore purchasing power.

First, the government must have the courage to evaluate all forms of lighthouse projects like the New Capital City (IKN), the coal gasification project to be funded by Danantara, the 3 Million Homes Program, the Free Nutritious Meals program, and the downstreaming program, which consume significant state funds but have not resulted in increased purchasing power.

Second, the government must evaluate budget efficiency policies that lead to austerity, such as cuts to public spending, such as those on education, health, or public services. These austerity policies negatively impact economic growth and public welfare.

Third, the government must focus on job creation. Based on data from the National Labor Force Survey (Sakernas) by the Central Statistics Agency (BPS), formal job creation has experienced a significant decline, from 15.6 million formal workers created during 2009–2014 to just 2 million in 2019–2024. Job creation is inextricably linked to the crucial role of Foreign Direct Investment (FDI).

Meanwhile, Indonesia's FDI figures are still very low, where according to OECD data, FDI only contributed 0.2 percent to Indonesia's GDP formation in 2020. This figure is the lowest in ASEAN.
To increase the role of FDI in job creation, achieving the Incremental Capital Output Ratio (ICOR) value cannot be underestimated.

Indonesia's ICOR value in 2023 was 6.33. This figure indicates that Indonesia has a high-cost economy. This figure is also higher than other ASEAN countries, which are around 4-5 percent. Lengthy bureaucratic licensing procedures, asynchronous regional and central regulations, and rampant corruption, which remains a scourge in Indonesia, are some of the causes of high investment costs. Furthermore, difficult and expensive transportation and logistics access make additional costs a major consideration for investors.

The government needs to maintain investor confidence in the credibility and integrity of its governance in managing the national economy. Rating downgrades from global investment institutions like Goldman Sachs and Morgan Stanley should not be underestimated. Decreased investor confidence has sluggish investment and led to a significant decline in the Jakarta Composite Index (JCI), which in turn has impacted the rupiah exchange rate, potentially leading to a monetary crisis and economic recession.

The state budget deficit of Rp 31.2 trillion, or 0.13 percent of gross domestic product (GDP) in just two months, and the IMF report predicting Indonesia's current account deficit will widen by 2 percent by 2025, should serve as a warning to the government. Furthermore, net foreign sales reached Rp 24 trillion throughout the year.

Even further, in the past six months, foreign net sales have reached Rp57.8 trillion. Meanwhile, Indonesia's foreign debt, which increased 5.3 percent year-on-year to US$427.5 billion in January 2025, has forced the government to be cautious.

The problem is, market reactions and economic problems cannot be compromised like differences in political views or matters of coalition or opposition to the government. Therefore, President Prabowo has no choice but to act as a game-changer who boldly evaluates the erroneous and negatively impactful policies of the previous administration.

Source: Rmol.id

#Indonesiagold #Lebaran2025 #oscarliving #furnitureshoppingmadeeasy #OLIV #PToscarmitrasuksessejahteratbk #Indonesia #Indonesianeconomy #sustainability #Indonesianeconomy #weakpurchasingpower #2025 #Carbon #IDXCarbon #IDX #OJK #Indonesiancarbonexchange #renewableenergy #greeneconomy #carbontrade #carbonfootprint #tourismcarbonfootprint #sustainabletourism #Indonesiantourism #sustainableeconomy #deflation #recession