Inflation shoots up sharply in May

Inflation rose sharply in May. Whether this is a one-off revival remains to be seen in the coming months. Business Insider reports this on the basis of figures from CBS.

The average price increase was 1,7% (against 1,1% in the previous month). The measured figure concerns the consumer price index, a basket of goods whose price development is monitored. Statistics Netherlands notes that other price indicators, such as rents, prices of owner-occupied homes and prices of shares have not been included.

The increase is because the prices of airline tickets, holiday parks and holidays abroad have become more expensive (compared to 1 year earlier). "This year the May holiday almost completely fell in May and in 2017 it fell for the most part in April. In addition, Pentecost this year fell in May and last year in June. A stay in a holiday park was therefore 15% more expensive than 1 year earlier. "

Due to the rising oil prices It was also noticeable that refueling became more expensive. Motor fuels (such as petrol and diesel) were on average 9,7% more expensive in May, compared to the same month 1 year earlier. "The price of petrol and diesel reached the highest level in almost 2018 years in May 4; 1 liter of Euro 95 cost €1,67 and the liter price of diesel was €1,36," according to CBS.

Savers worse off: extremely low interest rates
While inflation rose, savers do not see interest rates moving along. The highest variable savings rate has fallen sharply since the beginning of 2016 and stood at 0,35% in May. Many savings rates are even lower. For basic accounts on the internet, the major banks ING, ABN Amro and Rabobank all have a variable savings rate of 0,05%. Triodos even offers no interest at all on the bank's internet savings account.

Inflation in May was 1,5 percentage points higher than the highest variable savings rate, and almost 1,7 percentage points higher than the savings rates of the major banks. Savings in freely withdrawable savings accounts are worth less due to inflation. This is because the so-called real interest rate (the savings interest minus inflation) is negative.

The situation for savers is dramatic, because the savings interest for deposits (where savings are held for a longer period of time) are low. For example, the highest interest rate for money that is fixed for 5 years is 1,25%, even then you have a negative real interest rate. Only when savings have been secured for at least 18 years can you get 1,7% interest per year and that is high enough to compensate for the average price increase, if you assume that the inflation level of May is the norm.

Tax on wealth
And there is also the tax on wealth. The starting point for savings and investments taxed in box 3 is an exemption of €25.000 per person. Then in 2018 you pay 100.000% tax on the assets up to €75.000 (the amount of €25.000 that exceeds the exemption of €0,61); on the amount between €100.000 and €1 million, the effective levy is 1,3%; above €1 million, the levy will be 1,61%.

In order to retain the value of assets subject to the tax in box 3, a return of at least 25.000% is required for an amount between €100.000 and €2,3. That is unfeasible with the current deposit rates for savings.

The Dutch saved less in 2017
It is therefore not surprising that the Dutch saved less in 2017. Last year, households deposited an additional €300 million on accounts with Dutch banks, De Nederlandsche Bank reported. That is considerably less than the net investment in 2016, which amounted to €2 billion.

The low interest rate plays a role in this. People are looking for alternatives, such as making extra repayments on their mortgage or investing. Or they just leave their money in the checking account because it isn't worth putting it in a savings account.

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Kimberly Baker

Kimberly Bakker is an all-round editor at Boerenbusiness. She also has an eye for the social media channels of Boerenbusiness.

k.baker @boerenbusiness. Nl

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