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Consumers Still Confident Despite Food Prices, Inflation
Dion Bisara | February 06, 2011

Increasing wages across the country and an expectation of manageable inflation are among the reasons Indonesian consumers feel optimistic about the economy. (JG Photo/Safir Makki) Increasing wages across the country and an expectation of manageable inflation are among the reasons Indonesian consumers feel optimistic about the economy. (JG Photo/Safir Makki)
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Flying in the face of rising food prices and growing inflation worries, Indonesian consumers remain upbeat about the economy.

A monthly survey by Bank Indonesia showed the nation’s Consumer Confidence Index rose to 113.9 in January, up from 109.3 in December. The survey, which was released on Friday, polled 4,600 households from 18 cities and had a sampling error of 2 percent.

A score of more than 100 indicates consumers are more optimistic about the economy.

Purbaya Yudhi Sadewa, an economist at the Danareksa Research Institute, said the result was surprising given that inflation remains a threat. Commodity prices such as chili peppers and rice have surged in recent months.

“This could mean that government programs, such as rice for the poor, have worked and our social condition is not as fragile as it had been thought before,’’ Purbaya said.

Bank Indonesia pointed to expected salary increases as one of the reasons for the optimism.

The minimum regional wage (UMR) is expected to increase, and the country’s 4.5 million civil servants will also receive a pay rise, lifting people’s spending power.

According to Labor Ministry data, the UMR across 33 provinces rose an average of 8.9 percent last year. Jakarta, which has the second-highest UMR in the country, increased its minimum wage 15.4 percent this year to Rp 1.29 million ($143) per month.

Aceh, which has the highest UMR, set its minimum monthly payment at Rp 1.35 million, an increase of almost 4 percent.

The government also plans to pay an additional Rp 5.7 trillion to civil servants in eight ministries, including the police and Indonesian Armed Forces (TNI).

Bank Indonesia’s Current Economic Condition Index, a component of the CCI, also rose in January, climbing 3.9 points to 103.

“Consumers’ optimism cannot be separated from their expectation over improving job prospects amid buoyant economic growth,” the central bank said in a statement.

Bank Indonesia expects the economy to expand by between 6 percent and 6.5 percent this year follwing an estimated 6 percent growth in the economy last year.

The Consumer Expectation Index, another part of the CCI, climbed 5.1 points to 124.7 on respondents’ optimism that income and job availability would increase in the next six months.

Bank Indonesia said consumers also planned to boost their savings during the next three months as their income is expected to rise. Consumers also expect inflationary pressures to remain manageable during the next three months.

Consumer costs rose 7.02 percent in January, a 21-month high, from the same period a year ago.

That compares to a 6.96 percent gain in December. Bank Indonesia said last week that its headline inflation target is between 4 percent and 6 percent this year.