Inflation is falling, but not as quickly as Statistics Netherlands tells us

This week, CBS published the final figures on inflation in October. We already knew that this is -0,4% compared to October last year. Excluding energy it was 5,1%. I have often written that the official figure from CBS currently makes no sense. Earlier this year, the price range was changed to reflect the fact that families can fix their energy rates for a longer period of time.

If you compare the October price index figure of this new series with the October figure of last year from the same series, it appears that life has not become 0,4% cheaper, but 5,3% more expensive. The differences between the official figure and the actual price development of energy are currently enormous. According to Statistics Netherlands, electricity has become 58,1% cheaper, but according to the new series it has become 19,1% more expensive. On the other hand, according to Statistics Netherlands, electricity was no less than 2022% more expensive in October 161,5 than a year earlier, while the new series indicates a price increase of 'only' 22,6%. According to Statistics Netherlands, gas has become 61,8% cheaper compared to October 2022; According to the new series, gas rates have also fallen, but only by 18,1%.

Food price inflation is falling quite rapidly at the moment. In February it was still 18,4% year-on-year, in October it was 7,9%. The first graph shows that food prices have now fallen for three months in a row compared to the previous month.

The differences between various components are large. Bread was 14,6% more expensive in October than in October last year. The peak of bread price inflation was 21,7% in February. Meat inflation has fallen faster: 4,2% in October compared to 18,8% in March. Inflation is falling slowly for fruit and vegetables. Vegetables were 9,4% more expensive in October than a year earlier, fruit 7,6%. Milk and butter, on the other hand, are quickly becoming cheaper. Whole fresh milk was 4,7% cheaper in October than in October 2022 and butter itself 11,0%. On the other hand, these price drops represent a correction to previous strong price increases. For example, butter was no less than 39,1% more expensive a year ago than in October 2021. If you measure from October 2019, so before the pandemic, butter has become almost 24% more expensive in those four years...

Calculations of the election programs by the CPB
I am not going to say much about the calculations that the CPB has made with regard to all the measures mentioned in the various election manifestos. There is a lot of fuss about the fact that not every party has gone 'bare-bones'. In my opinion that is quite an exaggeration. The calculations are undoubtedly a fine piece of work by the CPB, but I do not attach much importance to them. No election program will be implemented in its entirety and it is difficult to estimate the precise effects of individual measures. In fact, in the past it has happened that a cabinet took measures that were not included in any of the coalition partners' election manifestos. In addition, the CPB system mainly looks at the demand side of the economy and much less at the supply side. The supply side determines our country's earning capacity in the longer term. I think that is a huge loss. In general, left-wing parties place more emphasis on the demand side and right-wing parties more emphasis on the supply side of the economy.

German economy remains under pressure
The German economy is developing weakly. Quarters with small pluses and small minuses in GDP growth alternate. The industry has been under pressure for some time. In September, industrial production fell by 1,4% compared to the previous month. It was the fifth month in a row in which production did not increase. Compared to September 2022, production in volume decreased by 3,7%. In the energy-intensive sectors, production levels were even an alarming 8,5% lower than in September 2022.

The industry booked 0,2% more orders in September compared to August, although the decline compared to September last year was still 4,3%.

Things seem to be gradually improving in the German automotive industry, although I must say that I hear through the grapevine from a Dutch supplier that he is actually receiving less work from Germany.

There is a lot of crying in German construction. Business confidence as measured in the purchasing managers index for construction fell from an already low 39,3 in September to 38,3 in October. In principle, numbers lower than 50 indicate shrinkage.

Nascent Chinese recovery?
The dollar value of Chinese imports unexpectedly rose sharply in October: +3,0% year-on-year, compared to a decline of 6,2% in September. Perhaps China's growth recovery is beginning to take shape. That would be good news for the global economy. I therefore sincerely hope so, but doubt is appropriate. For example, the import of raw materials rose sharply. Apparently the Chinese have made a strategic choice to increase their supplies. For example, the increase in the import value is certainly not entirely a reflection of increasing domestic expenditure. It is also striking that the export value actually fell and even more sharply than in September. As a rule, imports and exports develop fairly parallel. And finally, consumer prices in China fell both month-on-month (-0,1%) and year-on-year (-0,2%) in October. Chinese inflation has been hovering around 0% for seven months. That is not a sign of economic strength.

Closing
The official inflation figures are now starting to look a bit ridiculous. However, the difference between the official CBS figure and reality will become less significant in the near future. This does not alter the fact that inflation is falling fairly steadily. Differences between products and product groups are still large.

The German economy remains weak and this is not likely to change any time soon.

The surprisingly strong development of Chinese imports may be a sign of recovery in domestic demand growth. However, one swallow does not make a summer.

Hans de Jong

Han de Jong is a former chief economist at ABN Amro and now a resident economist at BNR Nieuwsradio, among others. His comments can also be found on Crystalcleareconomics.nl

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