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Netherlands inflation rate: Energy, food price hikes propel Dutch costs toward top of European table

By Nicole Willing

Edited by Valerie Medleva

10:37, 11 November 2022

flag of the Netherlands on the background of the river in Amsterdam
Inflation rate in the Netherlands soared to an all-time high in September. Photo: Harald Lueder / Shutterstock

Inflation in the Netherlands has soared in the past year, climbing above 14% in September and October and outpacing the eurozone rate at 10%.

What is driving Dutch inflation so much higher and what do forecasts indicate about the direction of the rate in the future?

Read on to learn more. 

What is inflation and how is it measured? 

The rate of a country’s inflation refers to the pace at which prices for goods and services rise over time, eroding the purchasing power of its citizens. In many countries, 2% is considered to be a sustainable inflation rate and central banks, including the European Central Bank (ECB), set 2% as their target to maintain price stability. 

Inflation typically rises when demand for goods and services in an economy outpaces supply, prompting suppliers to charge higher prices. Rising costs for inputs such as raw materials and components can also cause inflation, as suppliers pass on the higher costs to their customers to avoid losing money.

Inflation is measured by compiling a price index to compare the value of a basket of goods and services with the value in past months and years. There are several different types of index, such as a consumer price index (CPI), retail price index (RPI), personal consumption expenditure (PCE), or producer price index (PPI). 

The term “headline inflation” is used to refer to the overall rate of price increase, while core inflation excludes volatile prices such as food and energy.

Government statistics offices compile inflation data to help inform fiscal and monetary policy, and provide information to the public.

Inflation in the Netherlands

As the Netherlands is a member of the eurozone, the Dutch central bank De Nederlandsche Bank (DNB) is part of the European System of Central Banks (ESCB) and is partly responsible for determining and implementing the ECB’s monetary policy. The country is the fifth largest economy in the eurozone.

In the Netherlands, inflation rate data is collected and published by Statistics Netherlands (CBS). The CBS measures inflation every month as an increase in the CPI relative to the same month in the previous year. It also calculates core CPI excluding energy and motor fuel prices.

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Energy, food costs drive Dutch inflation to record highs

According to the Netherlands inflation rate history from CBS, the CPI was above the 2% target in the second half of 2018 and in 2019. It slipped to 0.7% in August 2020 and ended the year at 1%, reflecting the fact that before 2022 many countries were facing deflation rather than high inflation rates. 

The Netherlands inflation rate has climbed rapidly since July 2021, when it came in at 1.4%. It ended the year at 5.7% and jumped from 6.2% in February 2022 to 9.7% in March as the Russian invasion of Ukraine drove up energy costs across Europe.

Netherlands’ inflation (SPI); YoY% change]

In addition to the outright rise in oil and gas prices, a fall in the value of the euro (EUR) against the US dollar (EUR/USD) throughout 2022 – dropping below parity in September – has increased the cost of importing commodities sold in US dollars. 

While Dutch inflation dipped to 8.6% in June, it surpassed 10% in July and reached 14.5% in September.

The CBS data showed that the CPI dipped to 14.3% in October, compared with 3.1% in October 2021. Energy prices were lower than in September, offsetting higher food prices. Excluding energy and motor fuels, the inflation rate would have increased to 6.9% in October from 6.5% in September. 

The CBS also publishes a Harmonised Index of Consumer Prices (HICP) to compare Dutch inflation with other countries in the euro area. According to the HICP, consumer goods and services in the Netherlands were 16.8% more expensive in October than a year earlier, down from 17.1% in September. That was well above the broader eurozone HICP rate, which climbed from 9.9% in September to 10.7% in October. The Netherlands HICP has outpaced the eurozone HICP since November 2021.

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In releasing its Autumn 2022 Financial Stability Report on 10 October, the DNB said:

“Financial stability risks have increased over the past six months. High inflation, rising interest rates, the war in Ukraine and the possibility of a global recession have combined to create an unprecedented situation. Furthermore, inflation may remain high for longer than is currently being anticipated in financial markets and economic forecasts. These developments will put the financial sector to the test in the period ahead. 

“Inflation is high and interest rates are rising, while economic growth is slowing. This is a mix of factors that we have not seen to this extent since the 1970s. We are in better shape than we were then, and I have confidence in the resilience of our financial sector, but this combination of adverse developments undeniably increases financial stability risks,” said DNB President Klaas Knot.

To address the rapid pace of inflation, the Dutch government included €15.5bn additional spending in its 2023 budget released on 20 September aimed at supporting household purchasing power. Most of the measures continue €7bn in spending for 2022 such as reducing energy taxes, an energy compensation payment for lower-income households, a cut in fuel excise duty, along with increases in welfare and pension benefits.

“Usually, additional expenditures during high utilisation rates means additional inflation, but because a number of policy measures directly lower prices, the estimated net effect on inflation is negative (-1.7%-point). This is also why the policy packages [have] such a large impact on purchasing power,” according to an analysis by Dutch bank ING.

The Dutch government also announced it is working on an energy price cap for households and small businesses to subsidise the difference between the market price and the price cap.

Will the government’s efforts help to bring down the Holland inflation rate?

Netherlands inflation rate forecasts

ING’s Dutch inflation forecast indicated that the rate has peaked and could rapidly decline over the next year, from 14.1% in the third quarter of 2022 to 10.2% in the fourth quarter and 4.6% in the fourth quarter of 2023. The rate could average 5.5% in both 2023 and 2024 and then drop below the 2% target to just 0.8% in 2025. 

Dutch inflation rate – analyst forecasts

With a mild start to the winter in Europe bringing energy prices lower and allowing natural gas storage levels to be replenished, as well as the government’s support package, analysts at Dutch banking group Rabobank have revised down their inflation forecast.

They now expect the Dutch headline CPI rate to average 11.5% in 2022 and 2.5% in 2023, down from a previous forecast of 12.4% for 2022 and 4% for 2023.

“We have revised our inflation forecast (HICP) for 2022 downwards to an average of 11.5 percent (from 12.4 percent). We have revised our forecast for gas price developments significantly downwards for November and December, which means that inflation in these months is likely to fall more than we previously expected,” the analysts added.

“We currently expect inflation of 5.3 percent for 2024. Our inflation forecast for early 2024 will rise because we assume that the government will then release the price ceiling on energy bills for consumers and small consumers. It has previously been indicated that the ceiling is a temporary measure which will run until the end of 2023. Because we expect energy prices to still be higher than the ceiling values ​​at the end of next year, inflation will rise in our calculations from 0.5 percent in December 2023 to 8.7 percent in January 2024.”

Rabobank’s analysts also noted that the weather in Europe could be a deciding factor for energy price inflation. Natural gas consumption is below average for the time of year due to mild weather and lower consumption from energy-intensive industries. However, “inflation risk remains high. Gas stocks in the Netherlands can quickly run out due to two cold months, while new bottlenecks in the LNG market during the filling season in 2023 cannot be ruled out… It seems unlikely that the increase in commodity inventories in itself will ensure a rapid return of inflation to the ECB's policy target.”

Data provider Trading Economics projected that the Netherlands inflation rate could be 14% by the end of this quarter, dropping to 3.6% in 2023 and 2.4% in 2024, based on its econometric models.

The bottom line

If you are looking for Netherlands inflation rate forecasts to inform your trading strategy, keep in mind that geopolitical and economic volatility means analysts and forecasters can get their predictions wrong. 

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Remember that past performance is no guarantee of future returns. And never invest or trade with money you cannot afford to lose. 

FAQs

Is inflation high in the Netherlands?

The consumer price index in the Netherlands soared to an all-time high of 14.5% in September, outpacing the 10% inflation rate seen in the wider eurozone. 

What is the inflation rate in the Netherlands?

As of 10 November 2022, Dutch inflation has soared above 14% from around 3% a year ago, driven by rising food and energy costs.

Is the Netherlands economically stable?

The Netherlands has one of the world’s strongest and most stable economies. It is the world’s 15th largest economy based on gross domestic product (GDP) and has one of the highest per-capita GDP rates in the world.

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