Last year’s inflation figure fell due to new accounts, what are the consequences?

Last year's inflation figure fell due to new accounts, what are the consequences?

NOS News

Leases and wage negotiations: two things in which the rate of inflation always plays an important role. but by New calculation method From the Central Bureau of Statistics (CBS), last year’s inflation figures are much lower. What are the consequences?

The biggest difference is in September. The 14.5 percent inflation reported at the time caused quite a stir, also in The Hague. On the night before Prinsjesdag, due in part to the high rate of inflation, consultations were held until the last minute and large purchasing power packages were negotiated. But according to the new calculation method, the inflation rate that month ranged between 7.6 and 8.1%.

The chart below shows inflation numbers as reported last year and new calculations. Instead of looking at a single number, CBS is now looking at bandwidth:

Sandra Phillipin, chief economist at ABN Amro, has long been critical of calculating the inflation rate. The day before budget day, the bank published a report in which researchers looked at the impact of existing energy contracts. There was also a smaller increase in monthly costs at that time.

“I’m very happy with this new method, because it tells us a lot about reality,” says Phlippen, “but I worry about the impact of exaggerated inflation numbers. I don’t want to shortchange CBS, because the expense of this is huge, but it’s important that the effects are properly assessed.”

So what are those potential effects? Flippen: “The inflation figure that has been presented as very high for several months could lead to an increase in inflation. It had an impact on wage demands, on contractor contracts, and also on fears of more inflation in the future.”

“The government also responded to the high inflation rate when determining the amount of support,” says Phillipin. “All of the measures taken together have increased the total disposable income of most households in the eurozone over the past year, and wages have not been the biggest part of that.”

Wage-price spiral

Phlippen fears this could lead to a so-called wage-price spiral. This is an economic phenomenon in which inflation reinforces itself: this inflation demands higher wages, which means that firms have higher costs, which they pass on in their prices. “A tight labor market, few bankruptcies, and persistent inflation all provide the ingredients to ignite a wage-price spiral,” says Phillipen.

Statistics Netherlands says the method of measurement does not make much difference. “If you worried about high inflation last year and the downward spiral of wage prices, you should also worry about inflation, which is measured at a very low level now,” says chief economist Peter Hein. Mulligan. “If it is measured over a long period of time, it is equal and therefore has no effect.”

It is believed that the effect can occur if only one month is taken into account when calculating inflation. “But if you use the same month consistently every year, you will eventually end up at the same level.”

vulnerable families

The FNV trade union had put a high wage demand of 14.3 percent on the table, but many collective labor agreements had failed to do so. ABN has calculated that average increases in collective labor agreements will be about 6 percent. Much higher than in previous years, but lower than the new rate of inflation.

“But wages are only one part of what can lead to a wage-price spiral, and support measures are on top of that,” says Phillipen.

This is why she believes it is important to phase out public subsidies. According to her, there was enough time to find out the whereabouts of vulnerable families. “These are mainly low incomes in struggling rental homes. We must specifically support them.”

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