Bambang Pamungkas
Indonesia’s Consumer Confidence Index (CCI) experienced a significant downturn in May 2026, dropping to 120.9, marking its lowest point in seven months since September 2025, when widespread protests across the archipelago caused the index to dip to 115. While the current reading of 120.9 technically remains within the optimistic zone—indicating that consumers generally perceive economic conditions favorably, as it stays above the crucial 100-point threshold—the persistent decline, particularly in its primary constituent components, signals growing apprehension among Indonesian consumers regarding the nation’s economic trajectory. This erosion of confidence is raising alarms among economists and policymakers, prompting urgent calls for targeted government intervention to stabilize household finances and stimulate the economy.
The Anatomy of Declining Confidence
The headline CCI figure, while still optimistic, masks deeper concerns within its underlying components. Yusuf Rendy Manilet, Strategic Research Manager at the Center of Reform on Economics (CORE) Indonesia, emphasized this point, stating, "What is more worrying is not the main figure itself, but rather its composition." Manilet elaborated that the most substantial declines were observed in the Index of Job Availability (IKLK) and the Index of Current Economic Conditions (IKE). The IKLK, a crucial gauge of public perception regarding employment opportunities, fell to 105.0 in May 2026 from 108.8 in April, a notable decrease of 3.8 points. Concurrently, the IKE, which reflects public assessment of income levels and the ability to purchase durable goods, declined to 112.2 from its previous level of 116.5.
These shifts indicate a palpable change in consumer sentiment, moving from cautious optimism towards increasing unease. The IKLK’s drop suggests that Indonesians are finding it harder to secure employment or perceive fewer opportunities in the labor market. This directly impacts household income stability and future financial planning. Similarly, the IKE’s decline points to a weakening perception of current financial well-being, with households potentially experiencing stagnant income growth or increased cost-of-living pressures that erode their purchasing power for non-essential or big-ticket items. This trend is often a precursor to reduced discretionary spending and a general tightening of household budgets.
Adding to this precarious situation, Manilet highlighted a concerning trend in household finances: "At the same time, the proportion of household income used to pay installments has increased, while the portion that can be saved has actually decreased. This indicates that the pressure is not merely due to rising prices, but is beginning to touch income levels and labor market conditions." This phenomenon suggests a broader economic strain, where households are increasingly leveraged and have less financial buffer, making them more vulnerable to economic shocks. The decrease in savings is particularly troubling, as it undermines long-term financial security for families and reduces the capital available for investment, potentially slowing future economic growth and private sector expansion.
Economic Context and Historical Precedents
The reference to September 2025, when the CCI dropped to 115 amidst "large-scale protests or demonstrations in various regions across the country," provides a critical historical context. Such widespread social unrest is typically a strong indicator of deep-seated public discontent, often fueled by economic grievances, policy changes, or perceived social injustices. The fact that the current CCI decline is the most significant since that period suggests a return to a similar level of underlying economic anxiety, even without the overt social unrest observed previously. It serves as a stark reminder of how quickly public confidence can erode when economic fundamentals are perceived to be weakening.
Indonesia, a nation heavily reliant on domestic consumption, sees consumer confidence as a vital barometer of its economic health. Household consumption typically accounts for over half of Indonesia’s Gross Domestic Product (GDP), making it the primary engine of economic growth. Therefore, a sustained decline in consumer confidence can directly translate into reduced spending, which in turn can dampen overall economic growth, impact retail sales, and potentially lead to slower job creation across various sectors. The ripple effect can be significant, extending from small local businesses to large national corporations.
The current economic climate for Indonesia is also influenced by a complex interplay of domestic and global factors. While the global economy has shown signs of resilience in some areas, persistent inflation, elevated interest rates in major economies, and ongoing geopolitical tensions continue to cast a shadow. Domestically, while the central bank, Bank Indonesia (BI), has worked to maintain price stability and a conducive monetary environment, the rising cost of living, particularly food inflation, has been a persistent concern. Data from the Central Statistics Agency (BPS) for early 2026 indicated that food inflation remained a significant contributor to overall inflation, disproportionately affecting lower-income households. The unemployment rate, while generally stable at around 5-6%, shows pockets of vulnerability, especially among youth and those in less formal sectors, contributing to the perceived scarcity of job opportunities reflected in the IKLK.
Expert Recommendations: A Dual Approach to Economic Support
In response to these alarming trends, economists are advocating for immediate and strategic government interventions, proposing a two-pronged approach focusing on both demand-side stimulus and supply-side enhancements.
Yusuf Rendy Manilet of CORE Indonesia argued that given the apparent weakening of income and the job market, government policy priorities should pivot towards protecting the purchasing power of low-income groups. He emphasized the importance of well-targeted social assistance programs (bansos) and increased government spending in labor-intensive sectors. "In this way, policies will not only encourage short-term consumption but also improve the foundational income of the community," Manilet asserted, highlighting the dual benefit of immediate relief and long-term structural improvement. Labor-intensive programs, such as infrastructure projects or public works initiatives, can directly create jobs and inject income into communities, thereby stimulating local economies and providing stable employment for those most affected by economic downturns.
Senior Analyst at Indonesia Strategic and Economics Action Institution, Ronny P. Sasmita, echoed concerns about the CCI decline, interpreting it as a clear signal that households are beginning to curb spending due to real income pressures and future uncertainties. Sasmita urged the government to provide incentives, especially to vulnerable and lower-middle-class segments, whom he identified as the primary drivers of household consumption. He explained that these groups possess a high "marginal propensity to consume" (MPC), meaning that a significant portion of any additional income they receive is immediately spent, thereby stimulating economic activity. "The most effective incentives right now are those that directly boost the purchasing power of vulnerable groups and the lower-middle class, because they have a high ‘marginal propensity to consume.’ This means that every rupiah given is almost certainly spent directly, moving the economy," Sasmita elaborated.
For the short term, Sasmita proposed direct cash transfers (BLT) that are more precisely targeted, sustainable, and responsive to price pressures. He also suggested reintroducing electricity tariff discounts for low-power customers, such as those with 450 VA and 900 VA subscriptions, to alleviate utility cost burdens that disproportionately affect lower-income households. However, Sasmita also introduced a crucial nuance: "I actually see stronger policy room for intervention in food prices and supply stabilization. Because the reality on the ground is that the biggest pressure on purchasing power comes from food inflation. So market operations, strengthening distribution, and logistics subsidies can be far more effective in maintaining purchasing power than large but temporary cash transfers." This highlights the importance of addressing the root cause of inflationary pressure for essential goods, ensuring that any financial aid translates into tangible improvements in living standards.
Complementing these demand-side proposals, Deni Friawan, Senior Researcher at the Department of Economics, Centre for Strategic and International Studies (CSIS), stressed the need for government incentives designed to bolster the supply side of the economy. Friawan’s suggestions included initiatives aimed at job creation, such as cash-for-work programs and national internship schemes similar to those implemented in the previous year, where participants received government salaries. "That way, you get two benefits. They gain experience, and they also get money to help their purchasing power. So, from the demand side, you get support, and from the supply side, you increase production capacity. That’s what I think if you truly want to do more than just help the demand side," Friawan asserted. These supply-side interventions are critical for fostering sustainable economic growth by enhancing productivity and creating structural employment opportunities that can lift individuals out of precarious financial situations.
Government’s Ongoing Efforts and Middle-Class Resilience
The concerns raised by economists are not falling on deaf ears within government corridors. The Indonesian government has acknowledged the economic pressures faced by its citizens and is actively formulating new incentives to support household purchasing power, particularly for the middle class, a segment that has reportedly shrunk. A report by Mandiri Institute titled ‘Demographic Insights: Dynamics of the Middle Class in 2025,’ released in February 2026, revealed a concerning trend: the number of middle-class individuals decreased by 1.2 million, from 47.9 million in 2024 to 46.7 million throughout 2025. This ‘downward mobility’ of a significant portion of the population underscores the fragility of economic gains and the need for robust protective measures to prevent further economic stratification.
Ferry Ardiyanto, Acting Director General of Economic and Fiscal Stability at the Ministry of Finance, affirmed the government’s commitment to ensuring the middle class remains resilient amidst various economic challenges. Speaking at a working meeting with Commission XI of the House of Representatives (DPR) in Jakarta on Monday, June 15, 2026, Ardiyanto stated that these efforts would involve optimizing fiscal policies. These policies, he clarified, would not merely focus on economic growth but also on safeguarding the economic resilience of the community. "We will do all of this to ensure that the middle class remains middle class or moves up, and does not fall into the aspiring middle class," Ardiyanto emphasized, highlighting the government’s objective to prevent further erosion of this vital economic segment and foster upward mobility.
Adding to the parliamentary perspective, Chairman of DPR Commission XI, Mukhamad Misbakhun, confirmed that the government is indeed in the process of formulating a new stimulus package for the public. This initiative is particularly pertinent in the wake of recent increases in the price of Pertamina’s RON 92 fuel, Pertamax. "It is currently being formulated. We just discussed it there," Misbakhun told reporters when questioned about communications with the government regarding strategies to anticipate inflation stemming from the Pertamax price hike. The increase in fuel prices, even if moderate, can have a ripple effect across the economy, increasing transportation costs for goods and services, and ultimately contributing to overall inflation, further squeezing household budgets and potentially dampening consumer confidence even further.
Implications and Future Outlook
The decline in consumer confidence, coupled with the observed strain on household finances and the shrinking middle class, presents a multifaceted challenge for Indonesia. If unchecked, this trend could lead to a slowdown in domestic consumption, which has historically been the bedrock of Indonesia’s economic growth. Reduced consumer spending could impact various sectors, from retail and automotive to real estate and manufacturing, potentially leading to lower corporate profits, reduced investment, and a further dampening of the job market. This could create a self-reinforcing cycle of lower confidence and weaker economic activity.
For policymakers, the task ahead involves a delicate balancing act. While immediate stimulus measures are crucial to shore up demand and protect vulnerable households, these must be implemented judiciously to avoid exacerbating inflationary pressures or straining the national budget. The emphasis on targeted assistance and supply-side interventions, as advocated by experts, suggests a more sustainable approach than broad, untargeted subsidies. Stabilizing food prices through efficient distribution networks, strategic import policies, and market operations could prove more effective in boosting real purchasing power than simply injecting cash into the economy, which might otherwise be quickly eroded by inflation. Furthermore, addressing the structural issues in the labor market to create more stable and higher-paying jobs will be crucial for long-term confidence.
Looking ahead, the government’s ability to swiftly and effectively implement these proposed policies will be critical. Monitoring key economic indicators, including inflation rates, employment figures, and retail sales data, will be essential to gauge the impact of interventions. Furthermore, sustained efforts to improve the investment climate, foster job creation through structural reforms, and enhance social safety nets will be vital for building long-term economic resilience and ensuring that Indonesia’s middle class can not only weather current challenges but also aspire to greater prosperity. The path to restoring robust consumer confidence and securing inclusive economic growth will require a concerted and adaptive policy response that addresses both immediate pressures and underlying structural weaknesses.
