Indonesian Household Consumption Holds Strong Amid Global Economic Headwinds

Indonesian household consumption is demonstrating remarkable resilience, buoyed by government stimulus and relatively stable inflation, even amidst global economic shifts and escalating energy costs. Faisal Rachman, Head of Macroeconomic & Financial Market Research at Permata Bank, noted that purchasing power is being sustained by inflation that eased to 2.88% year-on-year in July 2026. This stability is largely attributed to the government's decision to maintain energy subsidies despite a surge in global energy prices.

The robustness of consumption is further evidenced by positive growth across various spending categories. Apparel spending saw a 3.52% year-on-year increase, while transportation and communication expenses grew by 5.71% annually. The restaurant and hotel sector also experienced a significant 6.47% year-on-year rise. Although the pace of growth has moderated compared to the previous quarter, household consumption continues to benefit from seasonal factors like school holidays, the ongoing "Makan Bergizi Gratis" (Free Nutritious Meal) program, and the persistent expansion of the digital economy.

Financially, credit growth also remains positive, reaching 12.67% year-on-year as of June 2026. State-owned banks have played a crucial role in supporting economic activity through government policies. However, Faisal cautioned that strengthening consumption must be accompanied by enhanced financial capacity among the populace. Data indicates that nominal credit growth in the lower collectibility categories (2 to 5) is around 10.3%, outpacing the growth of performing loans at 5.6%. This trend is particularly noticeable in the small and medium-sized housing segments, where non-performing loans (NPLs) have risen.

This situation signals a need to reinforce the foundation of public purchasing power, especially for aspiring middle-income groups. Faisal highlighted that these individuals are facing considerable pressure, with rising prices and living costs not only diminishing their purchasing power but also affecting their ability to meet loan obligations. These groups previously had access to banking finance, including housing loans. Therefore, maintaining price stability, boosting incomes, and ensuring healthy access to financing are critical for consumption to continue underpinning economic growth. Faisal also noted that fiscal support has limited room for maneuver.