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Core inflation in the Netherlands remains higher than in the eurozone
Inflation fell to 4,6% in July, Statistics Netherlands reports. However, according to the Dutch Central Bank (DNB), the sharp drop in energy prices masks the high core inflation (excluding energy and food), which is still much higher in the Netherlands than in the eurozone.
Inflation in the Netherlands was 4,6% in July. In June, prices were still 5,7% higher on an annual basis. Food inflation also fell: from 13,1% in June to 11,7% last month. The fall in dairy prices in particular contributed to this. The decrease in inflation is mainly due to the fact that energy (electricity, gas and district heating) is much cheaper than a year ago. In July, energy was 34,5% cheaper than the same month in 2022. In June it was 19,1% on an annual basis. Clothing also increased less in price on an annual basis than in June. In July clothing was 5,5% more expensive than one year previously, in June it was 10,5%. House rents also rose less rapidly. Rents were 2,1% higher on an annual basis in July, compared to 3% in June.
Increasing effect on inflation
The increase in excise duties on petrol, diesel and LPG from 1 July (after a temporary reduction in April 2022) had an upward effect on inflation. Although motor fuels were 11,1% cheaper in July than in July 2022, in June 2023 the annual price decrease was 23,2%, according to Statistics Netherlands. The prices of bungalow parks also rose.
There are two inflation numbers. The Consumer Price Index (CPI), as mentioned above and the Harmonized Index of Consumer Prices (HICP). With the latter, the Dutch figure can be compared with other European countries. According to the HICP, Dutch inflation is 5,3% (was 6,4% in June). This means that Dutch inflation in July is exactly on the average for the eurozone. Inflation in the euro area was 5,5% in June and has therefore fallen slightly.
Overheating Dutch economy
However, Dutch core inflation (the inflation rate excluding energy and food) is still higher, well above that of the eurozone. Dutch core inflation is 7,2%, while that of the eurozone is 5,5%, according to DNB. A possible explanation for this is the stronger overheating of the Dutch economy, according to DNB in a bulletin issued today (August 8). Wage growth in the Netherlands has also been higher than in the euro area in recent years, according to the central bank. "Which is a logical consequence of the tight labor market and higher inflation, but also contributes to higher core inflation."
According to DNB, the effects of certain factors are temporary, such as tuition fees that were halved during the pandemic and returned to normal levels in September last year. In addition, the adjustment in January 2023 of the weights of goods and services in the CBS inflation basket, as a result of changed spending patterns, will lead to extra high inflation in the summer months. "Without these one-off factors, the difference in core inflation between the Netherlands and the euro area would have been about 1 percentage point smaller."
In that case, core inflation would still be higher than average. Airline tickets and men's clothing in particular have become more expensive in the Netherlands, the central bank reports. In the years before the pandemic, Dutch core inflation was also relatively high.
Linda van Eekeres
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