Putra Muskita, Jakarta – When reports started to come out about Indonesia's shrinking middle class, I read them with great interest. Because this is about me. It's about my family, friends and colleagues.
These articles always throw around numbers, such as those from Statistics Indonesia that say the middle class, meaning someone who spends between Rp 2.04 million (US$133.82) to Rp 9.91 million per month, declined by 9.5 million from 2019 to 47.8 million this year.
When I read those numbers, I think of what's left in my bank account, or my rising credit card bills or being at the supermarket, trying to remember what a bag of rice cost three years ago.
I've so far come to two realizations. One is that the Indonesian middle class is far more vast, layered and subjective than the statistics indicate. The other is that whatever definition of "middle class" you subscribe to, one thing is clear: Things are not well.
What is 'middle class'?
Here's what I mean. A father raising his kids who spends Rp 2 million each month lives a substantially different life than a single person with Rp 9 million in monthly spending. But beyond this economist-defined range, you can still feel the middle-class struggle depending on where you are.
You could be living a perfectly middle existence in Jakarta: A 9-to-5 job in Sudirman, a mortgaged home in the suburbs and weekends at the mall. But the same amount of income would make you wealthy in a town outside Java.
Alternatively, you could be living in a wealthy neighborhood in Jakarta surrounded by people with substantially more money. By most metrics, you are wealthy. But you still feel middle class.
Or you might come from the outer suburbs, the first in your family to earn a university degree, now working a white-collar job in a nice office. Does that make you middle class? On paper, yes, but you could be struggling to make just above minimum wage. Every morning, you leave home at 6 a.m. because your commute takes three hours each way.
Perhaps one indicator of whether or not you are middle class is how you fund your life. Take Sara, a 32-year-old working mom of a toddler. She's had privileges, chief among them the opportunity to study abroad for undergraduate and postgraduate degrees.
But she's also middle class in that her privileges don't include generational wealth. "I'm making a fair salary for my job, but it's nowhere near enough to cover our monthly expenses," she says.
Sara's husband makes more than she does, but it doesn't change the fact that both of them need to work to make ends meet, and that some expenses, like hiring a nanny for their toddler, is a consequence of that reality.
The rice benchmark
Indonesia has long marketed its growing middle class to foreign investors: Young, digitally savvy and newly flush with disposable income. Who wouldn't want to tap into that?
Some people tell me that they find reports of Indonesia's shrinking middle class hard to believe. After all, the malls are packed and Pakuwon Group just opened a new one in Bekasi. Premium brands like On Running and%Arabica are popular. Brand new electric cars are increasingly common, being more affordable on an operational basis, sure, but not in terms of sticker price.
In reality, two things seem to be happening at once. First, no one can deny that prices have gone up. I noticed that a regular brand of rice costs Rp 74,500 for a 5-kilogram bag, whereas it was about Rp 65,000 sometime during the pandemic.
Sara also noticed it at a supermarket near her apartment earlier this year. Buying a premium rice brand for her daughter, she found that the price had surged past Rp 100,000 for a 5-kg bag, up from Rp 70,000.
She bought it anyway, unwilling to compromise on what she feeds her daughter, but it stung. Especially as she walked past a long line of people queuing for the viral Labubu dolls on the way home.
But others are not as lucky as Sara, which leads me to the second trend: Lifestyle adjustments.
Take Nina and her husband who live in the Jakarta suburbs. After her husband was laid off and switched to freelancing, they made changes. Nina swapped Starbucks for cheaper coffee brands like Tomoro or neighborhood cafes, saving 30 to 50 percent.
"I used to go to Starbucks all the time just because it was a habit," she says. "But now, I would go only if I had to work out of a cafe. The independent coffee shops often serve better drinks, too."
Nina isn't the only one. Starbucks Indonesia's sales have suffered significantly this year, which the company blamed on anti-Israel boycotts. But KFC, Pizza Hut and Unilever, all touchstones of middle-class living, have also announced declining numbers this year.
Meanwhile, so-called "premium wartegs" (food stalls) have grown in popularity around Nina's neighborhood, serving home-cooked food at prices comparable to traditional wartegs.
Nina has also cut back on ordering through food delivery apps, noticing that delivery fees have quietly risen, and opts for local brands for things like cosmetics or skincare when possible.
"Whenever I can find a comparable product that's cheaper, I would switch," she said. "Why would you pay a premium unnecessarily in this economy?"
All this has led to another sign: Deflation, which Indonesia has experienced over five consecutive months this year. The government has claimed that this is a sign of its success in keeping prices stable, but others say this is the result of consumers' declining purchasing power.
Himawan, a sales manager for a multinational company in Jakarta, also noticed the "shrinkflation" phenomenon. For instance, a carton of milk still costs the same and looks the same, but in reality, customers are getting 950 milliliters instead of the usual 1 liter.
"I believe this happens with a lot of products, but maybe we as consumers just don't realize it," he said. "Do companies do this to overcome the slow demand from the middle class? I don't know."
How did we get here?
In retrospect, none of this is surprising following the pandemic and currently, major wars. It's perhaps even more surprising that the global economy hasn't collapsed yet. But ultimately, something had to give. In other words, this is the hangover.
Having worked in the tech industry (as well as covering it as a journalist), I can't help but ponder tech's role in all this.
After all, tech companies primarily hire skilled workers, who are largely middle class, and pay them a premium over other multinational companies, while targeting middle-class consumers as well.
Tech investors poured billions into Indonesia's top tech companies, fueling billion-dollar valuations and funding customer-acquisition strategies driven by incentives, such as discounts and free delivery fees, designed to dominate the market over rivals.
While millions of customers flocked to these apps, it's worth asking: How many of them would stay without the artificially low prices?
Their growth numbers look good on paper. But anything would look good if you were practically giving things away. The real customers, meaning those who would pay even without discounts, are much fewer.
When the funds dried up, so did the discounts. And when the dust settled, most of these companies did not even make a profit, leading to the massive layoffs we saw in 2022 and 2023 that kicked many out of the middle-income bracket.
A larger issue is perhaps online lending. Indonesia has a large underbanked population, meaning people who may have a bank account but have never taken formal loans from a financial institution. That gained the attention of online lenders, which allowed customers to borrow money through a few clicks from an app.
But as these apps mushroomed across Indonesia, some legally, some not so, more than 137 million Indonesians reportedly amassed some Rp 66 trillion in debt, as Nikkei Asia reports. It's now worth asking: How much of the Indonesian economic growth over the past few years was actually financed by online debt? And can today's struggling consumers pay all this back? Or will more succumb to online lending despite their high interest rates in this economy?
An increasingly smaller pie
One well-known tech founder told me recently that for all its flaws, tech companies have undoubtedly created wealth in Indonesia. But that's limited to the upper echelons, like startup founders whose companies have gone public.
That wealth does not necessarily trickle down to the middle class, who are still the primary target market of most businesses.
One coffee shop owner in Jakarta tells me ingredients like coffee beans and milk have both risen in price.
"We can't change brands because that has an impact on taste, so we just accept the price hikes," he says, asking not to be named.
"We just try to absorb as much as we can without raising our own prices," but that also means giving out fewer discounts on food delivery apps.
Hans, who owns an e-commerce store selling electronics, is also feeling the heat. In the past, the store was able to get regular orders by relying mainly on keyword optimization. Now, with e-commerce marketplaces cutting back on incentives and also raising their fees, the battleground has shifted to live shopping.
Currently, Hans and his employees take turns doing six-hour live sessions per day. But he knows of rivals who do 24-hour sessions, which is hard for a small business to do: Not only does it require extra staff, they also need to invest in things like studio equipment.
Meanwhile, Hans says larger brands, such as the likes of Huawei or Lenovo, are lowering prices, competing directly with local players like him, perhaps in response to consumers tightening their belts.
"Honestly, if I were the customer and I saw global brands at similar prices to local brands, of course I would choose the global brand," he says.
"It feels like either the pie is getting smaller, or my slice is slowly getting eaten by large players."
Where to now?
Friends who just got back from trips to our neighbors in Southeast Asia, such as Thailand and Malaysia, tell me that the quality of life there is better than in Jakarta: More affordable, more quality food and better public transport.
One friend, a real estate entrepreneur, went on a trip to Tokyo and was surprised to see that beef prices in Japanese supermarkets are comparable to Jakarta's despite the obvious disparity in quality.
The common thread is that life as a member of the middle class in Indonesia is now more difficult. At best, it's not as good as it used to be. The government has made strides, but we're still far away from countries with a social safety net.
Sara, for one, leans toward pessimism. High prices aside, Jakarta's air quality and personal health issues have made her seriously consider relocating to Singapore, which is feasible through her husband's job.
Hans is more entrepreneurial. "However hard the situation may be, there are always opportunities," he says. "So we as middle-class businessmen have to always try and find them."
[Putra Muskita is a journalist based in Jakarta. He is the founder of Jakarta Dispatch, an upcoming Substack covering Indonesia's new economy. His interests include golden retrievers, 4k videos of people walking and early '00s R&B.]