Household Consumption in Indonesia

Household consumption, which is defined as is the total amount of money that all households in a country spend on goods and services for their own use, is typically broken down into three main categories:

• Durable Goods: These are items that are expected to last for a long time (more than three years). Examples include cars, furniture, appliances, and electronics.
  
  
• Non-Durable Goods: These are items that are consumed quickly or have a short lifespan. Examples include food, clothing, fuel, and medication.
  
  
• Services: This category includes all payments for services provided by others. Examples are haircuts, medical appointments, movie tickets, public transportation, and rent.

Overview of Household Consumption in Indonesia

Household consumption consistently contributes around 55 percent to Indonesia's gross domestic product (GDP), making it the primary driver of economic growth in Southeast Asia's biggest economy. This is actually a higher proportion than in many other major economies, highlighting the critical role that domestic demand plays for the Indonesian economy.

In times of global economic turmoil this is a blessing as the robust domestic market makes sure that economic activity remains sound.

Generally, over the past decades, we have seen a growing middle-class population in Indonesia. This is crucial for household consumption because the middle class is a major consumer of discretionary goods, and so an increase in this group implies long-term economic stability and consumption growth.

However, in recent years there has been some concern over the strength of Indonesia's middle class, with some reports claiming that the middle class is contracting in size, reflected in shifting spending habits in response to recent economic pressures and the post-COVID-19-crisis environment. Seemingly, consumer spending patterns have somewhat changed as there has been a noticeable decline in discretionary spending on big-ticket items such as cars (while spending on basic needs like food and fuel remained steady). It indicates a more cautious consumer mindset.

Meanwhile, Indonesia has been seeing a rapid digital transformation since the early 2010s. The rapid rise of digital platforms, including e-commerce and digital wallets, is fundamentally reshaping how Indonesians consume goods and services. Digital payments are becoming a preferred method, and there has been a significant increase in digital lending, which has the potential to influence future consumption patterns and financial inclusion.

Growth of Household Consumption in Indonesia

It is always hoped to see household consumption growth above 5.0 percent (y/y) in Indonesia as this is a growth level that is regarded to generate enough employment opportunities for the local population to sustain economic growth at a high pace and avoid the middle-income trap.

Unfortunately, household consumption growth has been having difficulty to grow above 5.0 percent (y/y) in recent years (see Table 1).

Table 1; Indonesia’s Household Consumption Growth (annual % change):

	2019	2020	2021	2022	2023	2024	2025
Quarter I	+5.02%	+2.83%	-2.22%	+4.35%	+4.53%	+4.91%	+4.95%
Quarter II	+5.18%	-5.52%	+5.96%	+5.52%	+5.22%	+4.93%	+4.97%
Quarter III	+5.01%	-4.05%	+1.02%	+5.40%	+5.05%	+4.91%
Quarter IV	+4.97%	-3.61%	+3.56%	+4.50%	+4.47%	+4.98%
Full-Year	+5.04%	-2.63%	+2.01%	+4.94%	+4.82%	+4.94%

^{Source: Badan Pusat Statistik (BPS)}

It is interesting to note that Table 1 shows contracting household consumption for four consecutive quarters between Q2-2020 and Q1-2021. This was the effect of the social and business restrictions that were imposed by the Indonesian government in an effort to curb the spread of COVID-19 in Indonesian society. This was a rare occasion when household consumption plummeted (a similar contraction in household consumption happened during the Asian Financial Crisis in 1997-1998).

There are three traditional peaks in household consumption in Indonesia every year:

• The Ramadan-Idul Fitri period (Islamic celebrations that together last for about 35 days, including a national holiday).
  
  
• The Christmas-New Year festivities (including a two-week school holiday).
  
  
• The 'summer break' school holiday in the second half of June and first half of July, when many people spend money on travel, leisure and entertainment.

On these occasions, people spend a lot of money on food, drinks, transportation (traveling), and clothes. While Christmas-New Year and the summer break are always at the same dates on the Gregorian calendar, the Ramadan-Idul Fitri period moves forward by around 10 days (because the Islamic calendar is around 10 days shorter). The shifting of this period causes some disruptions in terms of household consumption data on an annual and monthly basis.

These seasonal peaks are often supported by the disbursement of holiday allowances (Tunjangan Hari Raya, or THR) and other bonuses, which help to boost people's purchasing power.

What Are the Sub-Categories of Household Consumption in Indonesia?

Within household consumption, the key sub-category is food and drinks (non-restaurants). This sub-category accounts for slightly over 40 percent of total household consumption in Indonesia. This is not a surprise, though, as food and drinks are a basic necessity. It covers essentially all spending on food and beverages that are not prepared and consumed at a commercial establishment such as a restaurant, cafe, or hotel.

Another important category is transport and communication, which accounts for about 22 percent of total household consumption. This sub-category includes (1) all spending related to the movement of people and goods, whether for personal or business use (such as public transport, the buying of new and old cars, and fuel and maintenance of vehicles), and (2) all spending on postal, telephone, and internet services (such as internet, telephone and postal services, and purchases of communication devices such as tablets and smartphones).

The third-biggest sub-category is housing and household supplies, which accounts for about 12-13 percent of total household consumption. This category is a comprehensive measure of a household's regular spending on shelter and maintaining a comfortable living environment. It includes (1) the cost of renting a house, apartment, or other dwelling, payments for essential services (such as electricity, water and gas), and spending on routine upkeep of the home, and (2) purchases of a variety of goods used within the home (such as refrigerators, washing machines, air conditioners, kitchen equipment, cleaning products, detergents, paper towels, furniture and kitchenware).

Table 2; Distribution of Indonesia’s Household Consumption:

Sub-categories	2019	2020	2021	2022	2023	2024
Food & Drinks (Non-Restaurants)	39.4%	41.2%	41.2%	41.1%	40.9%	41.2%
Clothes, Footwear & Related Services	3.6%	3.5%	3.4%	3.3%	3.2%	3.1%
Housing & Household Supplies	12.8%	13.3%	13.2%	12.8%	12.4%	12.1%
Health & Education	6.7%	7.3%	7.3%	7.0%	6.8%	6.7%
Transport & Communication	22.8%	20.2%	20.1%	21.3%	22.2%	22.3%
Restaurants & Hotels	10.0%	9.6%	9.8%	9.9%	9.9%	10.0%
Others	4.5%	4.7%	4.8%	4.6%	4.5%	4.6%
Household Consumption	100%	100%	100%	100%	100%	100%

^{Source: Badan Pusat Statistik (BPS)}

So, what this means is that when - for some reason - there is less demand for (or less supply of) food and drinks or transport and communication, then the whole household consumption component will be affected significantly.

If we take a look at the growth rates of the sub-categories under household consumption in recent years, then we see that restaurants and hotels as well as transport and communication are showing highest growth rates. This is particularly related to the prolonged recovery from the COVID-19 crisis of these sub-categories (pent-up demand).

Table 3; Growth of Household Consumption by Sub-Category (annual % change):

Sub-categories	2019	2020	2021	2022	2023	2024
Food & Drinks (Non-Restaurants)	+5.16	+0.51	+1.46	+3.46	+3.44	+4.25
Clothes, Footwear & Related Services	+4.27	-4.21	-0.07	+4.31	+4.47	+2.55
Housing & Household Supplies	+4.66	+2.28	+2.19	+2.79	+3.80	+4.34
Health & Education	+6.60	+3.09	+1.70	+2.41	+3.99	+4.02
Transport & Communication	+4.78	-9.57	+2.59	+9.38	+7.59	+6.56
Restaurants & Hotels	+5.96	-8.14	+3.87	+6.57	+6.38	+6.53
Others	+3.09	-0.65	+1.83	+2.70	+2.90	+3.47
Household Consumption	+5.04	-2.63	+2.01	+4.94	+4.82	+4.94

^{Source: Badan Pusat Statistik (BPS)}

Besides the prolonged recovery, there also exists a long-term trend of increasing discretionary spending in Indonesia. This means that many people increase spending on products or services that are not essential for survival, implying their purchasing power improves.

Spending Patterns by Income Level

Indonesian households can be categorized into three income groups: (1) low, (2) middle, and (3) high. Their spending habits differ significantly.

(1) Low-income households; the lowest income households allocate the largest portion of their income to food consumption, often spending most of their earnings on basic necessities. This group is the most vulnerable to food price inflation.

(2) Middle-income households; this group is the largest segment of the population and has a consumption pattern that shifts towards non-food items as their incomes increase. They are the key drivers of growth in sectors such as transportation, communication, and education. However, a recent decline in the middle-class population has been noted, with some moving into the lower-income bracket, which can impact overall consumption.

(3) High-income households; the wealthiest households spend a smaller percentage of their income on food and a much larger percentage on non-food items, including luxury goods and services. They also have a lower consumption-to-income ratio, meaning they tend to save or invest more.

Geographic Variations

The spending patterns of households in Indonesia are also influenced by geography. For example, provinces with strong economies, typically because they are centred around resource extraction, tourism or major urban centres, see higher per capita household consumption. Top spenders can be found in Jakarta, Riau Islands, and East Kalimantan as these are areas with high-income populations and significant economic activity.

Meanwhile, the lowest spenders can be found in the provinces of eastern Indonesia, such as East Nusa Tenggara and West Sulawesi, along with some on Java and Sumatra, tend to have the lowest per capita spending. This reflects lower income levels and less economic development in these regions.

Urban households are the primary contributors to total consumption, particularly for non-food items, driven by the highest-income groups. In contrast, rural consumption is dominated by the middle and lowest-income groups, with a higher share of spending on food. This indicates a lower standard of living in rural areas compared to urban centres.

Concluding Remarks

While consumption is the backbone of the Indonesian economy, businesses must understand the nuance of changing consumer behaviour, the digital shift, and regional disparities. So, for businesses to succeed in Indonesia, they must not only focus on the overall growth of consumption but also on understanding the specific spending habits of different income groups and provinces while embracing the ongoing digital transformation.