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A number of statistical indicators appear to suggest that
purchasing power is improving, but in Indonesia purchasing power can be
a tricky thing to gauge. What does the anecdotal evidence say? Is
household purchasing power really recovering?
As interest rates decline and bank lending grows stronger, many
economists have been referring to the statistical data to show that
purchasing power is indeed improving. A number of leading indicators
have been cited as evidence of this.
Some frequently highlighted trends are: 1) the rising growth rate of
real M1 -- an inflation-adjusted measure of a money-supply aggregate
consisting of currency in circulation and demand deposits; 2) the
rebound of the 12-month moving averages of car and motorcycle sales; 3)
the strong upward trend in Bank Indonesia's monthly consumer confidence
surveys, and 4) the increasing level of remittances from Indonesian
workers overseas.
Nevertheless, Indonesia seems just too big and too complicated to
accurately depict using economic data alone. Data often provides
partial pictures of partial segments of the economy.
For example, car and motorcycle sales represent spending by households
in the middle and upper segments of the income scale. Meanwhile,
monthly surveys, although random, are based on a sample of only several
thousand out of a total of over 50 million Indonesian households!
When it comes to this country, sometimes one has to look at the
anecdotal evidence to find the missing pieces of the puzzle. In this
respect, the behavior of businesses in the food and consumer product
industries is interesting to observe. Food and consumer products are
among the basic things that households spend their money on.
So, if businesses in these industries are doing well, it should be a
safe bet to say that household purchasing power is doing well too.
Unfortunately the situation on the ground does not exactly provide much
cause for jubilation. So, let us look at a number of observations that
appear to contradict what the data is showing.
One interesting phenomenon in the food industry is the tendency for
some businesses -- in the face of rising costs -- to get their
customers to buy things that aren't really what they seem.
Such experiences are common in restaurants and fast-food chains, be
they local or Western, in Jakarta and other cities. A classic example
is the apparently intentional use of excessive amounts of flour --
flour being the cheaper ingredient -- on batter-coated products.
A chicken fillet served in a restaurant may look to be of customary
size, but the actual chicken meat contained in it is getting smaller
over time as the meat gets coated with ever more layers of flour.
Meanwhile, a pizza may look big, but the width of the area covered by
toppings has been dwindling.
Another interesting trick involves the substitution of cheese melt with
some yellow mixture of what appears to be flour and mustard, with, of
course some real cheese put in to keep the aroma. The mixture looks a
lot like cheese and even smells like cheese, so consumers often do not
realize they're being served "fake cheese", or keju oplosan as it is
known here.
Similar tricks are also prevalent in the packaged food industry. Over
time, it's getting harder and harder to find the essence of the food
product that one is buying. Purchase a pack of chocolate-chip cookies
and you'll find yourself saying, "I see the cookie, but where are the
chocolate chips?"
Some businesses seem to be making the most of digital zoom technology
by portraying advertised products as vastly inflated versions of the
real thing.
One who's lived long enough in Indonesia will notice that while the
pictures of food products in adverts are gigantic, the actual products
have shrunk in size to only a fraction of what they used to be several
years ago. This goes as well for a number of brands selling candy bars
and potato chips. Despite rising prices, the products are actually
becoming smaller in size over time.
At worst these practices are deceptive; at best they are a desperate
attempt to maintain company margins. In the face of increasing costs,
businesses appear to have little room to raise prices for fear of
hitting their sales figures.
The question economists should ask themselves is: Would all this be
happening if purchasing power is really recovering?
Of course, how widespread these underhand practices are is still
debatable as no data is readily available. But in spite of that, the
signals provided by the anecdotal evidence should not be ignored.
If these practices are truly prevalent, it could be that conventional
statistical indicators are only portraying part of the picture, while
the big picture is still that of a rapidly growing population with
limited job opportunities.
Does such an environment provide solid ground for a recovery in
purchasing power? Only time will tell.
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