Economist: CBS inflates inflation with idiosyncratic calculation method | Money

According to Statistics Netherlands, inflation in the Netherlands was 11.2 percent last month. That is the strongest price increase in the eurozone, excluding the Baltic States. Inflation is partly so high due to the way in which Statistics Netherlands measures the costs of utilities. The statistical office assumes that consumers sign a new contract every month, while in reality households have concluded contracts for a year or longer.

“You can see this as a statistical difference, but it could have a serious effect on inflation expectations,” said Sandra Phlippen, chief economist at ABN Amro. There is a risk that ‘inflation fears will nestle in expectations, which may then start to fulfill themselves’.

The European Central Bank is already struggling to cope with the consequences of the war in Ukraine. The current high inflation is reason for the ECB to accelerate its phasing out of its asset purchase programmes. Once that’s done, interest rates could go up.

According to Pieter Hein van Mulligen, chief economist at Statistics Netherlands, the lack of government-imposed maximum prices for products or services means that global energy prices are generally more easily passed on in consumer prices than in many other countries. “There are significant differences between the ways in which statistical offices in the EU measure energy prices,” said Van Mulligen. “Normally this will not have a major impact on headline inflation, but these are unusual times.”

According to Phlippen, the CBS method leads to ‘inflated’ inflation. Research by ABN Amro shows that the increase in annual energy costs in March should have been around 20 percent, while the official data showed a much larger jump.

Regulator De Nederlandsche Bank states that energy inflation in the Netherlands is rising faster than in other euro countries, mainly due to the calculation method used by Statistics Netherlands. “But it is not clear whether this leads to higher expectations,” said a spokesperson. “The method leads to a lot of volatility, which also means faster declines if prices start falling again.”