Retail sales rise in March as consumption remains robust

The growth of Indonesia’s retail sales increased for the second consecutive month in March, supported by strong demand in the domestic consumer-reliant economy, a recent Bank Indonesia (BI) survey shows.

The annual growth of the central bank’s real sales index stood at 25.1 percent in March versus 18.8 percent in February, and it is expected that the growth will continue in April to 27.8 percent, according to the survey.

“Consumption growth remains on an upward trend,” BI said in the survey, which was published on Tuesday.

Economists have predicted that Indonesia’s April legislative election would boost consumption in the country.

“The rise in [the real sales index] was mainly supported by strong demand in the ‘other goods’ category, as well as ‘information and communication tools’ category.”

Sales of “other goods” and information and communication tools expanded 52.7 percent and 41.4 percent, respectively, while food, beverage and tobacco sales grew 29.6 percent.

Indonesia’s economic growth has resulted in greater purchasing power and an increase in the middle class, with global consulting firm McKinsey & Company estimating the number of people in the middle class will double in 20 years to reach at least 90 million by 2030.

The number of subscriber identification module (SIM) cards sold nationwide exceeded 120 percent of the total population as of 2012, while sales of food and beverages nationwide reached about Rp 700 trillion (US$60.9 billion) last year.

Café and Restaurant Association of Indonesia (Apkrindo) chairman Eddy Sutanto said that most consumer spending was on food. “Many people want to eat something other than home-cooked food, as they have increased purchasing power,” he said.

“Consumption by people living in Bandung and Semarang, especially on food, significantly contributed to the 25.1 percent [retail sales] growth,” the survey read. Annual sales growth in Bandung and Semarang were, respectively, 57.3 percent and 24.5 percent in March.

Benedict Bingham, the International Monetary Fund’s (IMF) senior resident representative for Indonesia, said “very strong income growth” had been seen among the country’s consumers.

BI raised its benchmark interest rate last year by 175 basis points to 7.5 percent, which could have increased borrowing costs for consumers. However, the recent data showing robust consumption around the country indicates that the policy had little impact on consumers.

“The middle class is in a lot better shape than it was five, six years ago, and that is probably still sustaining consumption growth as the market has held up pretty well,” Bingham said on Monday.

More than 50 percent of Indonesia’s gross domestic product (GDP) was contributed by domestic consumption; but despite the strong showing on the consumer front, the country’s economy still slowed to 5.2 percent in the first quarter from 5.7 percent the previous quarter due to weak exports.

Inflation remained manageable despite the increase in consumer demand. Central Statistics Agency (BPS) data shows the consumer price index (CPI) moderated to 7.32 percent in March, and further still to 7.25 percent in April.

The BI survey also noted that consumers expected pressure on prices to ease in June and September in spite of the annual fasting month. It also found that annual sales growth slowed in September, especially in the eastern part of the archipelago, due to inclement weather ahead of the rainy season.

Source: The jakarta post