Will real inflation please stand up? A CPB economist made this joke about the figures of the CBS. Don’t run away, dear readers. In the official and economic Netherlands, they simply love three-letter abbreviations. But we are talking about a serious issue here.
You have been constantly confronted with it in recent months: the exceptionally high price increases in the Netherlands. Historic! A record! Higher than in other countries! 10 percent in July (vs. July a year earlier), 12 percent in August, 14 percent in September, 14 percent in October, things went from bad to worse – you’ve heard, read and seen it all.
But those sky-high inflation figures ultimately turn out to be a lot less high than expected. Inflation may have been overestimated by a third until September. The Central Bureau of Statistics (CBS) working hard to find out how much prices actually rose on average. But in August, inflation was likely between 7.5 and 9.7 percent, while the reported inflation rate was 12 percent. That’s quite a difference.
It has been known for some time that CBS overestimated inflation, just not by how much. For its price index, CBS used energy prices in new ones household energy contracts. That worked fine when energy prices were stable, but it stopped working when those prices rose sharply. Because a large group of people still had an energy contract with a fixed, lower price. And one group did have a contract with variable prices, but they were not yet as high as the price that energy suppliers charge new customers.
So CBS is now working hard to collect data on all those different contracts. Somewhere in the middle of next year, CBS expects to present an improved inflation figure. The economists of the Central Planning Bureau (CPB) have already started using a lower inflation figure to estimate purchasing power.
What does this mean now? First of all, that there is large inflation inequality, writes economist Marcel Timmer of the CPB. There are huge differences in energy prices that households have to deal with. Some households (with a new energy contract) experience a much stronger decline in purchasing power than others. (By the way, the CPB has been pointing this out since the spring.)
There are even households that will not experience the super high energy prices because the cabinet will introduce a price ceiling for gas and electricity on 1 January. This means that the enormous support package from the cabinet also turns out to be uneven: one household receives extra money, the other a blanket for the bleeding.
Meanwhile, the overly high average inflation rate does have serious real effects. It is used, for example, to increase rents for business premises. “Inflation even has the status of a legal fact: once published, nobody can litigate about it,” tweeted CBS chief economist Peter Hein van Mulligen. This week, the FNV union adjusted its wage demand to the inflation rate: 14 percent inflation, which means a 14 percent wage increase.
Has this too high inflation rate had any harmful effects? That’s a good question for further research. It’s possible that all that news about historically high, exceptional price increases in Europe has made consumers and entrepreneurs gloomy. That purchases or investments have been postponed. We have become so used to cheap energy that everyone – including economists, policy makers and statisticians – has to get used to what it means that a basic need suddenly becomes much more expensive.
Marike Stellinga is an economist and political reporter. She writes about politics and economics here every week.
A version of this article also appeared in the newspaper of November 12, 2022