Inflation in the Netherlands higher than in the eurozone: consequence of the liberalized gas market here

At 11.6 percent, the annual inflation rate in July returned above 10 percent, an increase of 1.7 percentage points compared to June. This brings inflation close to 11.7 percent in March, the highest rate so far this year. Energy prices in particular are driving the inflation rate up: they rose by 68.4 percent compared to a year earlier. Food, drink and tobacco became 10.1 percent more expensive. Excluding energy, the inflation rate in July was 6.1 percent.

The gas market is regulated in many countries, but not in the Netherlands

Frank Notten economist at CBS

Statistics Netherlands uses the European harmonized consumer index (HICP) for this figure, which differs slightly in terms of method from the consumer price index (CPI) customary in the Netherlands. The HICP makes comparisons between European countries easier. One of the differences is that the HICP does not include housing costs in the inflation figure, whereas the CPI does. The CPI figure follows on August 4.

Higher than in Eurozone

Inflation in the Netherlands is rising faster than the average in Europe. Across the eurozone, inflation rose from 8.6 percent in June to 8.9 percent in July. The fact that prices in the Netherlands are rising faster is partly due to the liberalized gas market, says economist at CBS Frank Notten. “Price increases are passed on fairly immediately and can therefore be felt more quickly. In many other countries, the gas market is regulated by government measures, but not in the Netherlands.” In addition, July 1 is traditionally a time when many suppliers renew their energy contracts. “We don’t have the exact breakdowns of inflation yet, but that could contribute to a high rise.”

Prices for services are also rising rapidly in the Netherlands. In June they had increased by 3 percent compared to a year earlier, in July it was 4.7 percent. In the eurozone, service prices rose from 3.4 percent in June to 3.7 percent in July. That difference between the Netherlands and the eurozone may be related to rent increases as of July 1, Notten thinks, a standard moment for this in the Netherlands. “Last year rents were frozen because of the corona crisis. They have been released this year. That could put upward pressure on inflation.”

Statistics Netherlands usually does not provide expectations for future inflation figures, but gas prices will continue to lead, thinks Notten. “If the gas tap is turned off, inflation will increase further. But normalizing those prices, as we saw in recent months from March, will also ease inflationary pressures.”

A small, “partial” harbinger: industrial output prices rose by “record high” due to more expensive raw materials, by as much as 30 percent in June compared to last year. This could also push up future inflation. “Part of the prices is determined by what is made in the industry.”

Despite inflation, the eurozone economy grew by 0.7 percent in the second quarter of this year. Long-term high inflation in combination with economic growth, Notten calls “special”. “But many countries were still in partial lockdowns in the first quarter of this year. Then growth occurs faster than from a normal situation.”