And, have you noticed that the Iran war is driving up prices? Of course, if you have a fuel-powered car and use it, it would be a shock to see how quickly the price rose when refueling. But beyond that?
On Tuesday we will learn more about the precise effect of the war on the Dutch economy, when CBS will make an initial estimate publishes about inflation in March (the US and Israel started bombing targets in Iran on the last day of February). Also statistical agencies in other European countries and the European Commission come Tuesday with inflation figures for the month of March.
Economists often say that it may take a while for higher oil and gas prices to be passed on to the rest of the economy. But from a tour we at NRC published last weekend, it turned out that such “second-order effects” are already fully tangible:
- Prices for airline tickets, fertilizer and freight transport were already rising;
- Potato starch group Avebe, which supplies raw materials for animal feed, glue and paper products, among other things, increased the rates;
- And a Rotterdam fishmonger increased his prices for turbot and sole by a quarter.
Qui-vive
Olaf Sleijpen, president of De Nederlandsche Bank (DNB), has an idea of why some prices are now rising relatively quickly. According to him, citizens and unions are now “more alert” to higher inflation than during the previous inflation peak in 2022, he said last week during the presentation of DNB’s annual figures.
While many citizens and companies initially seemed to hope that the price increase would be short-lived after the Ukraine war, they are now more inclined to immediately pass on the financial setback. What can we expect in the near future? Next Tuesday’s CBS estimate will provide insight into the first panic effect since the outbreak of the war: in the first estimate, CBS also shows how prices have risen if you do not include the energy price.
According to analysts, much remains uncertain for the months that follow. “We can only broadly conclude that the longer this situation continues, the greater the upward pressure on inflation will become and the more economic growth will decline,” economists from Rabobank wrote in a statement last week. report.
Several months
The Rabo economists expect that the Strait of Hormuz – the crucial transport artery for oil and gas, among other things – will remain closed until at least the end of April. After that, it will take “at least several months” before the transport of oil and gas is restored.
According to Rabobank, this will have an impact on prices until mid-2027. ABN Amro analysts are in a similar position report published last week On a slightly more positive note, the disruption in energy supplies could be restored in two months, after which prices could fall slightly later this year.
Bank economists and central bank governors obviously do not know what American President Trump plans to do. But at the moment the consensus among experts seems to be that inflation for the whole of 2026 could be around 3 percent. For next year, we still have to wait and see: there are scenarios in which the Iran conflict will soon die out and inflation will drop in 2027, but there are also scenarios in which monetary depreciation will actually worsen.
Heavy scenario
For example, DNB is preparing for a “severe” scenario in which inflation rises to 5.1 percent in 2027 because the conflict continues, it became apparent last week. The European Central Bank (ECB) now appears to be cautiously preparing for a possible interest rate increase at the end of April.
Even if inflation rises above the desired 2 percent for “not too long” the ECB could take measures, proclaimed ECB President Christine Lagarde last Wednesday in Frankfurt. There seems to be a great chance that we will achieve this this spring.
Lagarde previously called on national governments to be cautious with stimulus measures to ease the suffering of citizens. With subsidies for fuel, for example, governments pump more money into the economy, which can only increase inflation. In that light, you could call it wise for the Jetten cabinet to wait for the time being before taking measures.
What do you think: should the government provide financial assistance to citizens now that prices are rising? And how? Or is that actually a bad idea? Let me know via [email protected]
