Rental agreements and wage negotiations: Two things where the inflation rate always plays an important role. However, when the Central Bureau of Statistics (CBS) applies the new calculation method to last year’s inflation figures, it will be much lower. What are the results?
The biggest difference is in September. The 14.5 percent inflation reported at that time also created excitement in The Hague. The night before the Prinsjesdag, again due to high inflation, consultations were held until the last minute and major purchasing power packages were negotiated. However, with the new calculation method, this month’s inflation would be between 7.6 percent and 8.1 percent.
The graph below shows the inflation figures for the last year and the new calculation. Statistics Netherlands uses a range for the latter:
Sandra Phlippen, chief economist at ABN Amro, has long criticized the calculation of the inflation rate. The day before Budget Day, the bank released a report in which researchers examined the impact of existing energy contracts. Monthly costs also increased less at the time.
“I’m very happy with this new method because it tells a lot more about reality,” says Phlippen, “but I’m concerned about the impact of these exaggerated inflation figures. I don’t want to underestimate GIS because computing is big business, but getting the impact right is important.”
So what are these possible implications? Philippen: “The inflation figure, which has been presented too high for months, may cause inflation to heat up even more. Wage demands, for example, had an impact on contractor contracts and also on fears of even greater inflation in the future.”
“The government also reacted to the high inflation rate when setting the level of support,” says Philippen. “All of the measures taken together resulted in gross disposable income increasing last year for most eurozone households, with the largest part of it not wages.”
wage-price spiral
Philippen fears this could lead to a so-called wage-price spiral. This is an economic phenomenon where inflation increases: This inflation demands higher wages and causes companies to have higher costs that they reflect in their prices. “A tight labor market, several bankruptcies, and persistent inflation provide all the ingredients to set in motion a wage-price spiral,” says Phlippen.
Statistics Netherlands says the measurement method doesn’t make much of a difference. “Anyone who was worried about the high inflation and wage-price spiral of last year should also be worried about inflation, which is currently measured very low,” says chief economist Peter Hein van Mulligen. “When measured over a longer period of time, it is the same and therefore has no effect.”
He believes that the effect can occur if only one month is taken into account when calculating inflation. “But if you use the same month every year, you end up on the same level.”
precision digits
The FNV union put on the table a demand for wages as high as 14.3 percent, which is why many collective agreements have failed. ABN calculated that average rate increases would be around 6 percent. Significantly higher than in previous years, but lower than the new inflation rate.
“But wages are only one part of what can lead to a wage-price spiral,” says Phlippen, “added to that by the support measures.”
That’s why he thinks it’s important to phase out generic support. According to him, there was enough time to know where the vulnerable households were. “These are essentially low incomes in drafty rental apartments. We have to support them in a targeted way.”
Source: NOS
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
