Over the past few decades, the Dutch have experienced many fluctuations in the economy. Turbulent economic growth, recessions, rising and falling unemployment, a financial crisis, a crippling pandemic. But since the early 1980s, one basic pillar of the economy – the value of money – has remained fairly stable. Inflation, or currency depreciation, was usually low and therefore not a major theme.
That time is now over: inflation is exploding. The annual inflation rate in the Netherlands was no less than 6.4 percent in January, the Central Bureau of Statistics (CBS) reported on Thursday. According to another measurement method, which the EU uses, inflation in the Netherlands was 7.6 percent in January, it was announced last week. Inflation in January is higher than expected and higher than a month earlier – a pattern that has been repeated since last summer.
The last time inflation was this high in the Netherlands was a long time ago: in 1981, when inflation was 6.7 percent (according to the CBS standard). Many people in the Netherlands have never experienced that the money in their wallet or bank app became worth less every month, as it is now. Inflation eats away at purchasing power. Unless wages rise in line with inflation – but there are no signs of that as of yet.
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Expensive energy, expensive food
Not everyone is hit equally hard. As everywhere in Europe, Dutch inflation is especially high because of the increased energy prices. About half of the total inflation of 6.4 percent is caused by the more expensive energy. Electricity, gas and district heating were almost 90 percent more expensive in January than a year earlier. But that increased market price does not reach all consumers. The transaction data collected by ABN Amro shows that the actual payments made by households to energy companies were ‘only’ 30 percent higher than a year earlier. More than half of the households have concluded energy contracts in which prices are fixed, or in which additional taxes are charged at a later date. Depending on the term of the contract, the pain will come later, if the energy price remains high, says ABN Amro.
Energy inflation is fueling inequality. Harder hit are low-income households in poorly insulated houses. To compensate for the energy prices that have risen for months, the previous government decided to reduce the energy tax for all households once. 800,000 households received an additional 200 euros. Without the energy tax cut, headline inflation would not have been 6.4 but 7.4. so tweeted Peter Hein van Mulligen, chief economist at CBS on Thursday.
Even those who save energy with a warm sweater or with solar panels, it is difficult to avoid inflation. It is becoming increasingly widespread in the economy. This is partly because companies pass on the higher energy price they pay to consumers. This is noticeable in the supermarket. Food was 4.3 percent more expensive in January than a year earlier, compared to 2.6 percent in December. Vegetables rose in price by 7.7 percent in one year, dairy by 6.1 percent and coffee and tea by 8.3 percent.
Companies at a cost
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It is not only the consumer who is being driven to costs, but also companies. Because they are not always able to pass on increased purchase prices to the customer, who has to pay more and more attention to the money in these times. Food group Unilever (more than 2,500 employees in the Netherlands) warned investors on Thursday that profit margins will come under pressure this year, due to the “very high” price increases in raw materials, packaging and transport, among other things. Inflation is a global phenomenon. On Thursday, it was announced that inflation in the United States stood at 7.5 percent year-on-year in January, the highest figure since 1982.
Governments, including the Dutch, are also not spared by inflation. The Netherlands is becoming “collectively poorer” because higher energy bills are paid to oil and gas-producing countries such as Russia and Saudi Arabia, the president of De Nederlandsche Bank, Klaas Knot, said in a statement last Sunday. TV program Buitenhof† In the fourth quarter of last year, about 2 percent of the Dutch gross domestic product flowed abroad. That affects the Hague treasury, Knot said. The government cannot therefore compensate for the high inflation ‘just for everyone’.
What will the ECB do?
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Knot, who expects inflation to remain high into 2023, is a board member of the European Central Bank. That is the institution that has the task of keeping inflation in check. “So that you can buy as much for your money tomorrow as you do today”, as the ECB on the write your own site† The ECB can do little about energy inflation – it is largely determined by the global market. However, the ECB can prevent inflation from seeping through to the rest of the economy. With a higher ECB interest rate, borrowing becomes more expensive for citizens and businesses. This curbs economic activity and price increases. Christine Lagarde, the ECB president, last week expressed understanding for citizens who are “filling the tank, who have to put food on the table” and who are suffering from inflation. Pressure on the ECB to raise interest rates for the first time in a long time is growing day by day.