The latest Consumer Confidence Index, compiled by the central bank of Indonesia (Bank Indonesia) shows that Indonesian consumers have become more optimistic about their economic prospects in May 2015. The index rose to 112.8 points in May, up 5.4 points from the preceding month (a score higher than 100.0 signal consumer optimism). It was the first time this year that Bank Indonesia’s Consumer Confidence Index, which is based on a sample of 4,600 household in 18 major Indonesian cities, increased.
The index indicated that Indonesian consumers expect lower prices, improvement in income, and more job opportunities in the next six months. Although ahead and during the Ramadan (the holy fasting month) and Idul Fitri (celebrations after the fasting month) it is common to see inflationary pressure, Indonesian consumers predict that these pressures will decrease in August. In May Indonesia's inflation accelerated to 7.15 percent (y/y),
The survey also indicated that Indonesian consumers are more likely to buy durable goods, reflecting increased confidence in long-term income security.
Indonesia’s Luxury Sales Tax
After the Indonesian government announced its plan to cut the country’s luxury sales tax on furniture, home appliances and electronic products by the end of June 2015 - in a bid to boost the domestic economy which has slowed to 4.71 percent y/y in Q1-2015 - Indonesian retailers believe there is room to cut prices.
People’s purchasing power has weakened in Indonesia due to the slowing economy and depreciating rupiah and therefore the government is eager to boost household consumption (which already accounts for about 58 percent of Indonesian economic growth) by cutting the luxury sales tax on specific products. This tax (ranging between 10 and 50 percent) was introduced during the Suharto government in an effort to narrow income inequality.
For consumers the tax cut can make some products considerably cheaper. IKEA Indonesia stated that most of its products are currently subject to a 40 percent luxury tax rate.