Indonesian Consumers Squeezed as Rising Living Costs Erode Savings to Multi-Month Lows

JAKARTA, Investortrust.id — Indonesian household balance sheets are facing an intensifying squeeze as families direct a growing share of their monthly paychecks toward everyday consumption, steadily eroding their savings buffers despite resilient headline consumer sentiment.

According to a research report released Wednesday, Oct. 14, 2026, by Mirae Asset Sekuritas Indonesia, the proportion of household income spent on consumption climbed to 74.9% in September 2026, up from 72.3% in May. Concurrently, the share allocated to bank deposits and savings dropped from 17.5% to 15.4% over the same five-month span, marking five straight months of contraction.

Private consumption serves as the bedrock of Southeast Asia’s largest economy, generating more than half of gross domestic product. While sustained retail spending has kept headline growth resilient, the rapid drain on savings suggests households are funding basic living necessities out of diminishing capital buffers rather than organic real wage expansion. If household financial room continues to narrow, private consumption risks losing steam just as monetary and fiscal authorities seek durable economic momentum heading into 2027.

"Households are sustaining their consumption with increasingly restricted room to save," Novani Karina Saputri, an analyst at Mirae Asset Sekuritas Indonesia, wrote in the research note on Wednesday.

Middle-Income Wallets Under Strain

The financial erosion has landed squarely on middle-income families, particularly those with monthly expenditures ranging from Rp 3.1 million to Rp 5 million ($173 to $279).

For households spending between Rp 3.1 million and Rp 4 million per month, the share of income dedicated to consumption jumped 2.4 percentage points to 75.0%. Similarly, families spending between Rp 4.1 million and Rp 5 million saw their consumption ratio increase by 2.0 percentage points to 74.3%.

Despite these localized balance-sheet pressures, broad public sentiment remained relatively buoyant. Bank Indonesia’s Consumer Confidence Index (IKK) printed at 118.1 in September, holding comfortably above the 100-point threshold separating optimism from pessimism, though easing slightly from 118.5 in August.

However, underlying components revealed a diverging outlook: while the Consumer Expectation Index (IEK) advanced to 128.7 from 127.6, the Current Economic Condition Index (IKE) retreated from 109.4 to 107.5, underscoring that households perceive present financial conditions as deteriorating.

"Consumer optimism remains a dynamic indicator that requires confirmation from income improvements, employment gains, and actual sales volume before it can signal a broader consumption recovery," Novani noted.

Uneven Retail Demand and Sticky Prices

Underlying retail indicators demonstrate that consumer spending remains fragile and heavily concentrated in staple goods.

Bank Indonesia's Real Sales Index (IPR) expanded 1.3% year-on-year in August 2026, improving from 1.1% in July after logging a 3% contraction in June. On a sequential basis, August retail turnover rose 0.8%, rebounding from a 0.1% contraction in July.

Yet discretionary purchases suffered steep retrenchments. Clothing sales tumbled 12.4% year-on-year in August, while information and communication equipment fell 10.9%. Sales of household appliances also contracted 5.2%.

By contrast, sales of food, beverages, and tobacco expanded 2.6%, and automotive accessories rose 3.9%, illustrating that retail turnover is almost entirely driven by non-discretionary necessities.

Household purchasing power is confronting compounding headwinds from consumer prices. Headline inflation reached 3.28% year-on-year in September, outpacing core inflation of 2.84% as food and transport costs climbed. Mirae Asset cautioned that when price pressures concentrate in unavoidable daily essentials, families are forced to sacrifice discretionary purchases and tap emergency savings to stay afloat.

Subdued Consumer Credit and Investment Strategy

Financing metrics offer little indication that bank credit is stepping in to bridge the retail gap. Growth in consumer bank lending slowed to 5.07% year-on-year in August 2026, lagging far behind the overall banking sector's 13.65% credit expansion, which was steered predominantly by corporate investment.

While the banking sector's gross non-performing loan (NPL) ratio remained sound at 2.11%, the industry's broader loan-at-risk (LaR) metric inched up from 8.39% to 8.56%, signaling emerging asset quality risks among vulnerable borrowers.

In response to these tightening liquidity dynamics, Mirae Asset recommended a selective investment stance toward Indonesian banking equities, prioritizing commercial lenders with ample liquidity buffers and resilient loan books.

For fixed-income investors holding sovereign bonds and mutual funds, the brokerage advised maintaining limited-duration instruments that deliver steady cash flows, noting that portfolio durations can be extended gradually as domestic inflation moderates and the rupiah finds sustained stability.