The Cost of Living Squeeze: How Rising Food, Housing, and Transport Prices Reshape Household Spending
DOI:
https://doi.org/10.59976/jebin.v4i1.352Abstract
Household spending in Indonesia has become increasingly concentrated on three basic needs, namely food, housing, and transport, which together absorb roughly four fifths of the average household's monthly budget across 2018 to 2024. This pattern is particularly concerning because food's share of spending has actually risen, from 49.5 to 50.1 percent, even as income has grown, running counter to Engel's Law, which predicts that food's budget share should fall as income rises. This study aims to test whether a rising budget share for food, housing, and transport crowds out household spending across ten other expenditure categories. The study uses household expenditure data based on the National Socioeconomic Survey conducted by Statistics Indonesia, covering 14,700 households, analyzed through three systems of conditional Engel curves, each treating food, housing, and transport in turn as the source of budget pressure, estimated using a seemingly unrelated regression approach that reduces to equation by equation ordinary least squares because every equation shares an identical set of explanatory variables. The results show that twenty nine of the thirty relationships tested are negative and statistically significant. The largest displacement effect occurs between housing and food, where a one percentage point rise in housing's share reduces food's share by 0.573 percentage points, while health and education remain significantly crowded out by all three sources of pressure, despite the existence of Jaminan Kesehatan Nasional and Kartu Indonesia Pintar. These findings indicate that cost of living pressure in Indonesia is structural and pervasive, rather than being driven by any single expenditure category. The implication is that price stabilization policies for food, housing, and transport need to be designed in an integrated manner and paired with better targeted social protection, particularly for health and education.
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