Consumer Confidence Slightly Weaker in April

Consumer Confidence weakened slightly in April. After strengthening 1.1 percent in the previous survey, the Consumer Confidence Index (CCI) fell by 1.0 percent to 92.4. The decline in consumer confidence in April owed largely to more negative assessments on the state of the economy and also to heightened concerns over high foodstuff prices. Indeed, some 74.1 percent of consumers cited high foodstuff prices as a major concern in April vis-à-vis 71.8 percent in March. In addition, the recent talk of hikes in subsidized fuel prices also dampened sentiment.

The two main components of the CCI both declined in April 2013. The first one – the component measuring consumer sentiment toward current conditions, the Present Situations Index (PSI), slipped 0.8 percent to 76.8, as sentiment toward the current state of the national economy and the job market deteriorated. The other component of the CCI - the one measuring consumer sentiment toward the future (the Expectations Index or EI) – dipped 1.1 percent to 104.2, reflecting heightened concerns on how the national economy will perform over the next six months.

With consumers less upbeat on the country’s national economic prospects, buying intentions for durable goods did not show an increase in April. According to the latest survey, the percentage of consumers who have plans to purchase a durable good over the next six months remained unchanged from the previous month - when some 34.5 percent of consumers expressed plans to purchase a durable good. This is the lowest level since September 2012.

Consumer confidence in the government’s ability to carry out its duties strengthened in the latest survey. After decreasing 3.7 percent in the previous survey, the Consumer Confidence in the Government Index (CCGI) climbed 1.7 percent to 82.2 in April. In the latest survey, three components that make up the CCGI posted increases, while the other two components posted declines. The component to increase the most was the one measuring sentiment toward the government’s ability to enforce the rule of law (this index jumped 14.6 percent to 66.6 in April).

Weak but Expected to Improve

• Exports declined 2.5 percent on a monthly basis in February. Imports were also down: they dipped 0.9 percent MoM. On a YoY basis, however, imports were actually 3.0 percent higher although exports were down 4.5 percent. As a result, the February trade deficit widened to US$ 327.4 mn.

•  Indonesia’s non oil and gas exports to China, Japan, and the US reached US$ 1.80 bn, US$ 1.37 bn, and US$ 1.16 bn, respectively, in February 2013. These three countries accounted for 34.9 percent of Indonesia’s total non oil and gas exports. On the imports side, Indonesia’s major trading partners were still China and Japan, accounting for 19.5 percent and 13.4 percent of Indonesia’s non oil and gas imports,
  respectively.

•  We expect Indonesia’s exports to reach US$ 16.3 bn in March 2013, or higher than February 2013’s US$ 14.9 bn. As for imports, we expect them to rise to US$ 16.2 bn from US$ 15.3 bn in February. As a result, Indonesia’s trade surplus is expected to widen to US$ 158.6 mn in March 2013.

April 2013 Inflation Outlook: To Ease Despite Expected Fuel Price Hikes

•  MoM inflation in March 2013 reached 0.63 percent, giving rise to YoY inflation of 5.90 percent. Cumulatively, headline inflation reached 2.43 percent in the first three months of the year.
•  The basic foodstuffs component posted the largest increase (+2.04 percent MoM), followed by the prepared foods component (+0.40 percent MoM), the medical care component (+0.24 percent MoM), the housing component (+0.21 percent MoM), and the education component (+0.12 percent MoM). Meanwhile, the clothing component dropped 0.70 percent.
•  In March, a tightening in the supply of garlic and onions led to sharp increases in basic foodstuff prices. In response, the Ministry of Trade granted approval for the import of 134,600 tons of garlic in an effort to bring prices down. Consequently, in April, the prices of several major basic foodstuffs like rice are expected to ease, especially given the onset of the harvesting season.
•  In April 2013, the government weighed up several policies aimed at reducing the consumption of subsidized fuel to reduce pressures on the state budget. In this regard, the government has identified two options: 1) hiking subsidized fuel prices and 2) limiting the consumption of subsidized fuel by private motorists.
•  The first option (raising subsidized fuel prices) has the main advantage of being easy to implement. Nonetheless, there would be a significant impact on inflation since all motorists (private car owners, public transportation, and motorcyclists) would have to pay higher fuel prices. According to Danareksa Research Institute’s calculations, each 10 percent rise in subsidized fuel prices would result in additional inflation of 0.7 percent. As such, this option would likely lead to a significant erosion in consumer purchasing power and a consequent slump in household consumption.
•  Under the second option of limiting the consumption of subsidized fuel, the government may choose to focus on limiting fuel consumption by private cars, government vehicles, and mining and plantation vehicles.
•  Using the assumptions contained in the 2013 state budget, these fuel restriction policies are expected to save 14.7 mn kiloliters of premium fuel and 3.02 mn kiloliters of diesel fuel. This would save 34.74 trillion rupiah (if the policy is introduced in June 2013). Furthermore, if the calculation is based on the actual subsidized fuel consumption up to March 2013, the implementation of this policy would save 16.9 mn kiloliters of premium fuel and 3.6 mn kiloliters of diesel fuel. This would save 51.46 trillion rupiah. In the case that private cars will be required to consume non-subsidized fuel (e.g. pertamax) whilst public transportation and goods transportation will still be allowed to consume subsidized fuel, we believe there will only be a slight impact on the general prices index (less than 0.5 percent).