Less Albert Heijn, more Aldi. What does it mean if prices in the Netherlands rise by 10 percent? The first tentative indications appear. Budget supermarkets are getting more customers. Organizations that help people budget get more questions. And concerns about problematic payment arrears are increasing among energy suppliers and housing associations.
Inflation has reached a record high in recent months. In April, consumer prices were 9.6 percent higher than a year earlier, reported the CBS on Tuesday† The cause, in a nutshell: major raw material and personnel shortages due to rapid economic recovery after a pandemic, and the war in Ukraine.
Also read: Inflation seeps through to the shopping cart
Price increases have not been so high since the 1980s. And where the high inflation was then compensated by even higher wages, the purchasing power of the Dutch is in danger of declining sharply this year.
What does that lead to? Are people going to live more frugally? Change their behavior? Are the money problems increasing?
There are no hard figures. Not yet. We are only at the beginning: the costs for groceries and energy are expected to continue to rise. And the longer it takes, the greater the chance that people will run out of money.
But the first behavioral changes are there. For example, market researcher GfK sees that budget supermarkets such as Aldi, Lidl and Dirk are becoming more popular. Their market share was about 3 percent higher at the beginning of this year than at the beginning of last year, according to a GfK survey among ten thousand households that report on their purchasing behavior for a long time. And private labels are becoming more popular, at the expense of A-brands – including among high-income consumers.
In the long run, bigger problems seem inevitable. If the price of basic needs such as heat, food and clothing continues to rise so quickly, “it is only logical that poverty will also increase,” says researcher Stella Hoff of the Social and Cultural Planning Office (SCP). More people than fall below the poverty line. Or, more accurately, the poverty line is rising because you need a higher income to meet your basic needs.
Currently, approximately 900,000 people live in poverty, according to figures from Statistics Netherlands and SCP. That is roughly one in eighteen Dutch people. Their disposable income is around 1,100 euros per month or less. The poverty risk is greatest for people on social assistance, single-parent families and people with a migration background, especially from refugee countries.
Many poor people simply have a job: about 40 percent are ‘working poor’. Hoff: “People who work few hours, for whatever reason – that doesn’t help. Certainly not if it is for a salary around the minimum wage. We also see a lot of people with temporary or precarious jobs.”
Relationships under pressure
If poverty in the Netherlands increases in the future, Hoff says, this will lead to much broader problems.
Because poverty is more than a lack of money. It also means that your child cannot attend paid tutoring, sports club or music lessons, which means that they miss out on opportunities to develop. In this way, the poverty risk is also passed on to a new generation. Hoff: “And your physical and mental health suffers because you have stress.” This puts pressure on relationships, between partners and between parents and children.
It is not only people who are around the poverty line that are concerned about the rapid price increases. Arjan Vliegenthart, director of the budget institute Nibud, sees this in the questions that come in. “We get more calls from people who have trouble making ends meet, especially from people who earn around average.” The vast majority of questions are about the energy bill, says Vliegenthart.
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Yet energy suppliers do not see the number of families with payment problems increasing significantly. Vattenfall sees a “slight increase”, says a spokesman. The payment behavior of customers is changing in other ways. In this way, more people reduce their installment amount. This is not without risk: although it does indeed provide savings in the short term, the full bill must still be paid at the end of the journey.
Energy supplier Nuts Groep, the company behind NLE and Budget Energie, among others, also says that customers who now have higher energy rates pay a little less quickly than before. “But for now, the numbers are manageable.”
Housing associations, telecom providers and health insurers have not yet seen payment arrears, at least not more than normal. But they do see small shifts.
For example, health insurer Menzis often fails to collect a direct debit order “somewhat”. This is not necessarily the result of high inflation. During the corona pandemic, insurers saw that more people were paying their bills on time. Probably because they spent less during the corona months, and therefore had more money left over. This increase could therefore also be the ‘old normal’.
Still, the companies are concerned. They expect the number of people who can no longer pay the bill to increase later this year.
Heating off
This is therefore the time to be alert, says Marco Florijn, chairman of the association for financial aid providers NVVK. When people get stuck, it takes a while for authorities to notice, he explains. “First they turn off the heating and put on three sweaters. Or they borrow money from friends and family.” Only if they really can’t make it anymore do they turn to the municipality and debt counseling.
Incidental compensation, such as the one-off energy surcharge of 800 euros, will not keep people out of financial problems, says Florijn. “Politicians can therefore sit down and hope that it is not too bad, or they must structurally invest in people’s livelihoods – for example by raising the minimum wage.”
The last time prices rose that fast, in the 1970s and 1980s, that price increase was more than offset by rising wages. The most extreme was 1975, when prices rose by 10.2 percent and wages by 15.5 percent.
Also read: Prices will go up and your wages will not. How is that possible?
At that time, the trade union movement was still powerful. Now, fifty years later, her following has been decimated. Only one in seven employees is still a member, compared to more than one in three in the 1970s. The unions are still negotiating the working conditions of about 80 percent of Dutch workers, but their power base has weakened.
This translates into lower wage growth. In April, the average wage increase in new collective labor agreements was 3.4 percent, according to employers’ association AWVN. That is the highest wage growth in at least fifteen years, but still far below inflation.
This also affects the unemployed. Because all kinds of benefits follow the development of collectively agreed wages, such as social assistance, the AOW and disability benefits. So if wage growth lags, that pain will also be felt by the disabled, retirees and welfare recipients.
Although it is obvious that people will find themselves in a pinch, there is much doubt about the magnitude of that problem. What does not help: It is unclear exactly how high the price increase that people are now experiencing.
The CBS figure of 9.6 percent seems to be a serious overestimation. Because more than half of this is explained by the rapid increase in energy prices. For example, gas was 141 percent more expensive last month than a year earlier, according to the statistical office, and electricity 156 percent. But that method of measurement is up for debate.
The costs of energy will remain high for the time being, ABN Amro expects. In addition, inflation is broadening
Statistics Netherlands only looks at the price of new energy contracts, while most households have a long-term contract in which an old – lower – price is still fixed. Statistics Netherlands has no insight into what households really pay for their energy.
According to ABN Amro, the actual energy costs rose much less sharply: by an average of 20 percent. This is apparent from the transactions of about five million ABN account holders. This is not only due to the long-term contracts. Also people who had concluded a new (and therefore more expensive) energy contract in the first three months of this year, paid on average ‘only’ 25 percent more.
Soft winter
“If people see a high price in their new contract, they will probably reduce their consumption,” explains chief economist Sandra Phlippen of ABN Amro. The mild winter also helped. As a result, people more often get money back for the past year and their expected consumption for the coming year may be lower.
But 25 percent is also a sharp increase, which particularly hits low incomes hard. Where does this end?
Energy costs will remain high for the time being, analysts at ABN Amro expect. And more and more people have to deal with it when they have to sign a new contract.
In addition, inflation is broadening. “Companies also consume energy,” says Phlippen. Those higher production costs are filtering through to a growing number of consumer prices. “In addition, price increases tend to cause new price increases.” Phlippen expects the ‘erosion in purchasing power’ to be felt at least until next year.
In short, the pain of inflation is far from over, not even for middle income earners. Vliegenthart of the Nibud: “They may have a little more leeway. But they will also have to ask themselves: how do I deal with this?”