Plastic Prices Double in Indonesia
Soaring packaging costs amid the Iran war
hint at a deeper malaise as the middle class contracts
and growth hits a plateau
1.
Trigger: External Geopolitical Shock
o
Conflict in West Asia raised global oil and
petrochemical prices
o
Plastic prices in Indonesia surged up to 100%
2.
Impact on Small Businesses
o
Street vendors face rising input costs (plastic,
food, fuel)
o
Unable to raise prices due to weak consumer demand
o
Result: shrinking profit margins
3.
Cost-Push Inflation Risk
o
Higher input costs spreading across sectors
o
Potential rise in overall inflation
4.
Consumption Under Pressure
o
Household consumption ≈ 54% of GDP
o
Rising prices + stagnant incomes → reduced
purchasing power
5.
Shrinking Middle Class
o
Declined from 57.3 million (2019) to 46.7
million (2025)
o
Weakens the main driver of demand-led growth
6.
Growth Outlook Moderating
o
World Bank & OECD project ~4.7–4.8% growth
o
Below government’s ambitious targets
7.
Structural Weaknesses
o
Heavy dependence on:
§ Imported
raw materials
§ Energy
inputs
o
High vulnerability to global shocks
8.
Manufacturing Slowdown
o
PMI near contraction (50.1)
o
Signs of deindustrialisation
9.
Limits of “Downstreaming”
Policy
o
Focus on basic processing of commodities
o
Limited value addition and technological depth
10.
Fiscal Pressures Rising
·
Expensive welfare schemes (e.g., free meals
programme)
·
Rising subsidy burden due to high oil prices
11.
External Trade Vulnerabilities
·
Disruptions in routes like the Strait of Hormuz
affect energy and trade
12.
Risk of Middle-Income Trap
·
Growth stuck around 5% (“so-so growth”)
·
Needs 7–8% for developed economy ambitions
Bottom
Line
A simple rise in plastic prices highlights deeper
issues:
weak consumption, shrinking middle class, and structural dependence on
external factors—putting Indonesia’s long-term growth at risk.
The
plastic bag is an unlikely symbol of economic frailty. But in Indonesia, the soaring
cost of that humble everyday item is raising uncomfortable questions about the country’s
future growth prospects.
At
a market in Depok, south of Jakarta, the plastic bags Budi needs to sell his chicken
have nearly doubled in price. “Plastic is really expensive right now,” he said in
an interview on April 17.
“Usually,
I’d have to set aside at least 10,000 rupiah (58 US cents) for plastic bags, but
now, I need a minimum of 15,000-20,000 rupiah. It’s quite a lot if I buy in bulk.”
That
may sound like small change. But for Budi, who sells chickens for a maximum of 50,000
rupiah per kilogram and operates on razor-thin margins, it is the difference between
staying afloat and going under.
“If
I don’t raise the price, I’ll suffer a loss … If I raise the price, buyers will
run away,” he told CNBC Indonesia.
Multiply
Budi’s predicament across millions of street vendors, market traders and small food
businesses, and what begins as a mundane packaging story becomes a window into something
much larger: the growing vulnerability of Indonesia’s economy to external shocks
– and the weaknesses those shocks are beginning to expose.
Economic ripples
The
proximate cause is, by now, a familiar one: the fallout from the US-Israel war on
Iran has driven up oil and petrochemical prices, pushing the cost of plastic packaging
higher.
Indonesia’s
Food and Beverage Industry Association said on April 13 in a statement to state
media that the prices of plastic used in packaging, including for frozen meat products,
had surged by as much as 100 per cent.
The
squeeze has not stopped at plastic. Prices have also climbed for chicken, soybeans,
cooking oil, non-subsidised fuel and liquefied petroleum gas. In Tangerang, on Jakarta’s
western outskirts a dim sum seller captured the mood in a widely shared social media
post.
“I’m
very shocked that prices aren’t stabilising,” she wrote on April 4. “Instead, they’re
getting even more expensive. My dim sum is still 30,000 rupiah per 10 pieces, no
price hike. It’s just my profit margins are getting thinner because chicken and
plastic prices are totally nuts.”
“My
customers’ salaries aren’t going up either. If I raise prices, I’ll have even fewer
buyers,” the seller added.
Rizal
Taufikurahman, an economist with the Institute for Development of Economics and
Finance (Indef) in Jakarta, said the plastic price spike
should not be dismissed “as a trivial issue”.
“It
has the potential to cause a ripple effect in the micro-economy,” he said, adding
that plastic was a crucial input in various informal sectors.
“If
this situation persists extensively and for a prolonged period, the accumulated
cost pressures can contribute to inflation and ultimately suppress purchasing power.”
That
matters enormously in a US$1.4 trillion economy where household consumption accounts
for more than half – 53.88 per cent – of gross domestic product, according to national
statistics body BPS.
Shrinking middle class
For
more than a decade, Indonesia’s economy has expanded at a reliable annual clip of
5 per cent, powered in large part by its middle class.
President
Prabowo Subianto came to office promising to shatter that ceiling – lifting growth
to 8 per cent by 2029 through a surge in domestic spending, the “downstreaming” of raw commodity exports into higher-value products
and a suite of signature state-backed programmes.
But
the engine is already showing strain. The middle class that underpins consumption
has been shrinking: its ranks fell to 46.7 million people last year, BPS figures
show, down from 47.9 million in 2024 and a pre-pandemic peak of 57.33 million as
recently as 2019 – a loss of more than 10 million middle-class consumers in six
years.
A
lack of social safety nets for the middle segment is one likely culprit, according
to Bhima Yudhistira Adhinegara, executive director of the Centre of Economic and
Law Studies (Celios).
“The
government is only protecting the bottom 40 per cent,” he told This Week in Asia.
“Policies to maintain domestic consumption … stimulus packages for the middle class,
such as electricity tariff discounts and wage subsidies, are almost non-existent.”
His
prescription for growth? “The government should boost employment, especially in
the formal sector. I believe this is the key to ensuring household consumption remains
the anchor of our economy.”
External
forecasters are adjusting their expectations accordingly. The World Bank cut its
annual growth projection for Indonesia to 4.7 per cent on April 8, down from 4.8
per cent, while the Organisation for Economic Cooperation and Development trimmed
its forecast to 4.8 per cent from 5 per cent, citing disruptions to energy supply
chains.
Among
economists polled by This Week in Asia, views diverged. Yusuf Rendy Manilet, a researcher at the Centre of Reform on Economics (Core),
said growth could still reach “at least 5 per cent” on the back of strong domestic
and government spending – bolstered by a first quarter that encompassed the major
holidays of Eid ul-Fitr and Chinese New Year.
Bhima
said he agreed with the World Bank’s growth forecast, arguing that uncertainty surrounding
the Iran conflict had “driven many upper-middle class people to divert some of their
holiday allowance” and hold back on spending they would have ordinarily deployed
during the Eid season.
Officials
in Prabowo’s administration are, perhaps predictably, less pessimistic.
Airlangga
Hartarto, chief economics minister, said on April 13 that
the economy could grow “above 5.3 per cent” this year, citing strong consumption
and investment. Finance Minister Purbaya Yudhi Sadewa,
who is targeting 6 per cent growth, went further – dismissing the World Bank projection
as a “miscalculation” and saying the bank had “committed a grave sin” by generating
negative sentiment.
“I’ll
wait for their apology when oil prices return to normal,” he said on April 9.
Purbaya said he had several tricks up his sleeve
to mitigate the oil crisis’ immediate impact, including sweeping budget cuts across
all ministries to free up as much as 100 trillion rupiah (US$5.8 billion), which
could be used to defend fuel subsidies as benchmark Brent crude surged past the
US$70 level baked into this year’s budget assumptions.
Downstreaming
dreams
Central
to Prabowo’s push for 8 per cent growth is a strategic commitment to Indonesia’s
extraordinary natural resource endowment.
He
has pressed ahead with his predecessor Joko Widodo’s “downstreaming”
policy – banning raw mineral exports in favour of domestic processing – in an effort
to capture more value from assets such as nickel and bauxite before they leave the
country.
The
policy generated 584.1 trillion rupiah in related investment in 2025 alone, a 43.3
per cent year-on-year jump, according to the Ministry of Investment and Downstream
Industry.
The
government now plans to extend downstreaming to plantations,
fisheries and maritime products. But economists warn that execution may prove difficult.
“If
the downstreaming policy stops at the initial processing
stage, the economy will remain dependent on fluctuations in global commodity prices,”
Rizal of Indef said.
“To
become a driver of sustainable growth, downstreaming must
be integrated with advanced industrial development, technological capacity building
and human resource development … Without this, the policy merely increases output
without fundamentally improving economic resilience.”
Earlier
this month, Airlangga said that new exit duties on coal and nickel would be introduced
to boost government revenues and offset the burden of rising global oil prices.
But
Yusuf of Core cautioned that such a “windfall tax”, while useful, “is relatively
small compared to the potential increase in energy subsidies. A widening deficit
is still a possibility.”
Bhima
added a further complication: some Indonesian commodity exports destined for the
Middle East and Europe were ordinarily routed through the Strait of Hormuz – the
very chokepoint disrupted by the Iran conflict.
In
addition to consumption and commodities, economists point to manufacturing as another
growth driver, especially labour-intensive sectors such as textiles and vehicle
assembly. Industry contributed a little over 19 per cent to GDP last year, led by
food and beverages, basic metals and chemicals, according to BPS.
But
manufacturing is not the economic pillar it once was. S&P Global’s Manufacturing Purchasing Managers’ Index for Indonesia
came in at 50.1 in March: the lowest reading in eight months and uncomfortably close
to the 50-point threshold between expansion and contraction.
“March
data highlights the vulnerability of Indonesia’s manufacturing economy to the war,
notably from a price and supply front,” said Usamah Bhatti, an economist at S&P
Global Market Intelligence, in a report issued on April 1.
Rizal
said the decline in manufacturing activity reflected “a heavy dependence on imported
raw materials and energy”.
“When
global disruptions occur, production costs increase, directly depressing industrial
output,” he said. “Weakening demand, both domestically and from exports, further
exacerbates the situation.”
Indonesia
had declared 2026 its year of “industrial acceleration”, with the Industry Ministry
pledging in February to move faster on petrochemical upstream projects and machinery
modernisation in textiles.
Then
there are Prabowo’s signature initiatives. Indonesia’s president has staked considerable
political capital on three costly priority programmes: a free nutritious meals scheme
targeting 83 million people, a nationwide affordable housing drive of 3 million
homes and the roll-out of “Red and White Village Cooperatives” designed to stimulate
the rural economy. He insists these will generate millions of jobs and boost demand.
“These
are a big booster for the economy. Everything is based on evidence. I’m asking the
people for time. I’ll prove it by 2029,” he told journalists on March 18.
Critics,
however, worry about the impact on Indonesia’s budget. The government has allocated
335 trillion rupiah for the free meals programme this year alone.
Bhima
argues such vast sums serve to crowd out education spending and create food-price
inflation as the programme directly competes with school canteens and small businesses.
On
March 31, facing mounting pressure from rising oil prices, the administration announced
a scaled-back version of the programme – saving around 40 trillion rupiah – while
ring-fencing spending elsewhere through ministry-wide budget cuts.
Indonesia’s
deficit is required by law to stay below 3 per cent of gross domestic product.
‘So-so’ growth
The
question hanging over all of this is whether Indonesia can break free from the gravitational
pull of 5 per cent growth, or whether it risks a slide towards the dreaded middle-income
trap that has ensnared so many emerging economies before it.
“The
declining middle class is a phenomenon that aligns with deindustrialisation that
has occurred in Indonesia in recent years,” Yusuf of Core said. “When that happens,
our growth is [stuck at] around 5 per cent. This isn’t enough to realise the government’s
long-term vision of being a developed nation by 2045, which requires growth of 7
to 8 per cent, or even more.”
His
prescription echoes that of his peers: “The government should focus on creating
jobs in the formal sector for the middle class. Re-industrialisation is crucial
for Indonesia to no longer be trapped in so-so, 5 per cent growth.”