Mirae Asset Sekuritas Indonesia Macro update by Mangesti Diah Sulistiani

Nov 14, 2018

October CCI plunged to 119.2pt, the lowest point since February 2017

The headline consumer confidence index (CCI) for the month of October fell by 3.2pt to 119.2pt from 122.4pt in September (-1.24% YoY, -2.60% MoM), according to a Bank Indonesia (BI) survey. October CCI—which missed the consensus estimate (123.4pt) and marked the lowest level in twenty months since February 2017 (117.1pt.)—plunged due to (1) consumers’ weakening perception of current economic conditions and (2) consumers’ weakening optimism on economic conditions ahead.

The headline current economic conditions index (CECI) dropped 3.70% MoM to 106.2pt (from 110.2pt in September), and also dropped 1.34% on a YoY basis (from 107.6pt in October 2017). The consumer expectations index (CEI) fell 1.71% MoM to 132.2pt (from 134.5pt in September), and also fell 1.16% on a YoY basis (vs. 133.8pt in October 2017).

Deteriorating current economic conditions

Consumers perceive deteriorating current economic conditions compared to the previous six months, with all components of the CECI (durable goods purchasing index, current income conditions, and current employment conditions) declining (see Figure 3). Consumers’ perception of current employment conditions/job availability fell 6.8% MoM (-6.5% YoY).

Moreover, income conditions declined further in line with the falling durable goods purchasing index (see Figure 3). Nevertheless, despite consumer confidence plunging to its lowest point since February 2017, the household consumption ratio (average propensity to consume/APC) slightly increased to 67.7% (vs. 67.1% in September), with loan repayments (debt service to income ratio) recording stable growth (12.8% for two consecutive months).

Meanwhile, the savings/deposits-to-income ratio slightly declined to 19.6% (vs. 20.1% in September). With the consumption ratio broadly stable after falling since the start of 2017 (reflecting the shift in consumption behavior from non-leisure to leisure, and shutdown of stores such as 7-Eleven, Debenhams, GAP, Matahari Department Store, and Lotus Department Store in 2017), we see limited room for consumption improvement amid the uncertain macro backdrop. Also, we believe consumers’ purchasing power has been relatively resilient despite still-soft purchasing intention.

Less optimistic on economic conditions ahead

Consumers are less optimistic on economic conditions for the next six months compared to current conditions. Specifically, they anticipate weakening business activities, as well as weakening income conditions and employment conditions

Consumers expect relatively mild inflationary pressure in the next three to six months

According to the survey, consumers expect inflationary pressure in the next three months (to January) to be relatively mild, as they have positive perceptions about the sufficiency of goods and services as well as stable subsidized fuel prices. As for the next six months (to April 2019), consumers expect weaker inflationary pressure, as they anticipate increasing availability of basic necessities and smooth distribution.

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