Medium Class Consumption Detained Due To Rising Food Prices And Government Policy

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JAKARTA - Consumption of the middle class that was restrained was reflected in the realization of economic growth in the second quarter of 2024 which slowed down allegedly due to a series of government policies and fluctuations in food prices.

Head of Bank Permata economist Josua Pardede conveyed that the series of various government policies from the PPh 21 Average Effective Tariff (TER) of individuals who were connected again to rising food prices because El Nino from the end of last year to Eid would certainly hold back the spending of the middle class.

"The two UKT education discourses, then also Tapera. So this certainly affects consumer sentiment, especially the middle class," he said at the PermataBank Virtual Media Briefing - PIER Economic Review: Mid-Year 2024, Thursday, August 8.

Josua conveyed that the government needs to be careful and review upang before making a policy in the future so that it does not have a negative impact on the community. Given that there are still plans to implement packaged plastic and packaged sweetened drinks (MBDK).

For this reason, Josua conveyed that fiscal incentives for the community are needed and are important things to maintain people's purchasing power. Such as the Government-borne Value Added Tax (VAT) (DTP) for housing because public consumption is important because the Indonesian economy depends on household consumption.

As for the second quarter of 2024, household consumption has a portion of 54.53 percent of total economic growth. Meanwhile, PMTB and exports contributed 27.89 percent and 21.40 percent, respectively.

"I also think that this year's VAT increase plan needs to be considered by the government to be able to mitigate the impact of the domestic economic slowdown," he explained.

"So that other incentives, I think, are extended from VAT DTP, for example for housing, I think this is one of the policies that can be considered. Apart from this, of course, studying or delaying the imposition or preparation of excise for several plastic products (MBDK) and also recently related to discourse for music concerts," he added.

On the same occasion, PIER's Head of Industry & Regional Research, Adjie Harisandi, said that basically the increase in food prices had quite an impact on purchasing power, especially the middle class because, middle classes that do not have social supports, such as the lower class, must use their savings to consume.

"We see that the impact is quite pronounced for the middle class who do not get existing social cushions from the government," he said.

Adjie explained that the government needs to ensure and overcome the supply of foodstuffs so that there is no significant price increase and affects middle class public spending.

In addition, Adjie also conveyed that related to policy directions that tend to put more pressure on the middle class, such as the potential for excise, it can be reviewed again, whether it is appropriate to implement the current policy.

As for 2023, the middle class in Indonesia will cover around 52 million people and represent 18.8 percent of the total population.

"Because this middle class tends to be disturbed due to an increase in food prices at the beginning of the year and several policies that may have occurred, thus disrupting the middle class," he said.