Indonesia's Consumer Confidence Falls to 32-Month Low

By Arijit Ghosh and Wahyudi Soeriaatmadja

July 14 (Bloomberg) -- Indonesia's consumer confidence index fell to a 32-month low in June on concern higher food and fuel prices will erode incomes, a central bank survey showed.

The measure declined to 79.1 last month from 82.4 in May, according to a Bank Indonesia survey released today. A reading below 100 indicates pessimists outnumber optimists.

Bank Indonesia raised its benchmark interest rate for the third straight month on July 3 to slow inflation at a 21-month high. The central bank said it will use ``all instruments'' to slow price gains after the first increase in fuel costs in almost three years made transporting food, cement and steel across the world's largest archipelago more expensive.

``The increase in fuel prices in May has prompted consumers to expect further price gains of all goods and services in the next 3 to 6 months,'' Bank Indonesia said in the survey published on its Web site.

The central bank on July 3 raised its key rate to 8.75 percent from 8.5 percent, seeking to keep inflation from exceeding its year-end forecast of 11.5 percent to 12.5 percent as companies pass on higher costs to consumers.

Costlier wheat, soybean and oil pushed Indonesian inflation to 11 percent in June. The expense of transporting supplies across the nation's 18,000 islands may increase following a 29 percent jump in fuel prices in May.

A measure that tracks expectations of family incomes in the next six months fell to 114.4 in June from 117.3 a month earlier, according to the survey of 4,600 households in 18 of the nation's major cities.

Bank Indonesia said it expects political parties to boost spending in preparation for elections on April 9, aiding consumer confidence.

``I'm not too pessimistic about consumer confidence because during the election time, there is usually a lot of spending, which will then boost consumer spending,'' Governor Boediono told reporters in Jakarta today. The central bank is on track to keep inflation below 12.5 percent this year ``but we will stay alert.''

To contact the reporter on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net; Aloysius Unditu in Jakarta at aunditu@bloomberg.net.