Purchasing power for an average Dutch household will decrease by approximately 4 percent in 2022 and 2023. That reports the Central Planning Bureau (CPB) Tuesday morning based on our own analyses. Although the price ceiling helps to prevent even worse loss of purchasing power, this instrument is ‘not a structural solution’.
According to the CPB, the cause of the decline in purchasing power lies mainly in the high inflation figures and a lagging rise in wages. In their calculated ‘baseline scenario’, inflation will be 10 percent this year and 3.5 percent next year. Without a price cap, this would have been 2.5 percentage points higher. A considerable margin of uncertainty must be taken into account in this regard, due to uncertainty about the development of energy prices.
Structural solution
The CPB estimates that the government deficit will rise to 3 percent of gross domestic product (GDP) in 2023 due to the price cap and other measures announced by the government on Budget Day. It is the first time that the purchasing power consequences of these plans have been calculated. CPB director Piet Hasekamp says that the cabinet has bought time with the measures, but will have to think about a long-term solution: “We will have to take structurally higher energy prices into account. A structural problem requires structural solutions, the current price cap does not.”
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In addition to a ‘basic scenario’, the advisory body calculated the costs in three other scenarios: a lower gas price, a higher gas price and a higher gas price in combination with a severe winter and therefore more gas consumption. In the most favorable case, the CPB estimates the costs of the price cap at 8.4 billion euros, in less favorable circumstances this will rise to 13.1 billion.
The CPB states that the restoration of purchasing power will mainly have to come from ‘an adjustment of wages’. The Planning Bureau advises the government to focus on ‘sustainability and energy saving and targeted compensation of the most vulnerable households’.
The CPB made a video about the new purchasing power figures: