Jakarta – Indonesians remain confident about their country's economic outlook, but their worries about employment opportunities and inflationary pressures persist.
The consumer confidence index (CCI), an important economic indicator in a consumption-reliant economy like Indonesia, stood at a yearly high of 120.1 in November, rising 0.6 points compared to the previous month, according to data from Bank Indonesia (BI) published on Wednesday. The index surveyed 4,600 households in 18 cities throughout the archipelago.
All scores above 100 denote consumer optimism while scores below 100 reflect pessimism. Indonesian consumers are currently among the world's most confident. In comparison, official figures showed that the CCI in the US stood at 73.1 in November, while neighboring Thailand scored 79.1 in the same month.
The data also showed that Indonesian consumers were concerned about job availability, which is measured in the expectation index, one of two components of the CCI, with the other being a present economy index. The expectation index tumbled slightly by 0.1 percent compared to a year earlier.
Indonesia's CCI has rallied for six consecutive months since touching 102.5 in May, its lowest in a year, following concerns of a fuel price hike during the month.
In its November report, BI warned increasing inflation might be caused by the planned hike in electricity prices. "Inflationary pressure in the next three and six months is predicted to increase because of the government's plan to increase the price of electricity in 2013," the central bank wrote in the report.
Analysts have said that, besides the planned hike in electricity, Indonesia would see more pressure on its inflation level next year as the government might be tempted to increase the price of subsidized fuel.
Fauzi Ichsan, an economist at the Indonesian branch of Standard Chartered, believed that inflation might top 7 percent if the government increased the price of subsidized fuel by 30 percent.
"We see headline inflation as hovering at 5 percent next year. However, if the government increases the price of subsidized fuel by 30 percent, inflation then will touch 7 percent," he said during a press briefing on Indonesia's economic outlook in Jakarta on Wednesday.
Indonesia might be tempted to reduce fuel subsidies due to the likely increase in the global oil price, said Fauzi, who forecast the price of Brent oil to average out at US$115 per barrel next year.
He added, however, that the government was unlikely to have the political will to undertake such an unpopular policy, given the looming 2014 general elections. "The technocrats sitting in the government might want to adjust the price of subsidized fuel, but the political party-related ministers might not want that to happen."
In anticipation, to curb inflationary pressure next year, BI might increase its benchmark rate to 6.25 percent, from its current level of 5.75 percent, according to Fauzi.
"If BI opts to keep its benchmark rate steady, then I forecast an increase in the Fasbi rate by 50 basis points," he noted, referring to an overnight deposit facility provided by BI for commercial banks to manage their funds, which currently offers an interest rate of 4 percent.
Standard Chartered shared an optimistic view of Indonesia's economy next year, forecasting the country to grow by an average of 6.5 percent given strong investment and robust consumption.
The UK-based bank also believed that the recent increase in the minimum wage would not serve as a drag on Indonesian investment, which it identified as one of the major drivers of Indonesia's economic growth, besides domestic consumption.
"There is a risk faced by businesses if they decide to leave here," Standard Chartered economist Eric Sugandi said. "We have a market with high potential, so if businesses relocate out [from Indonesia] they will lose out to competitors." (sat)