Why is inflation in the Netherlands so high, and what does this mean for the future?
If you live in the Netherlands, you might have already noticed that life got a bit more expensive. We see it happening to food in the supermarket, a glass of wine in a café or the energy prices. But where do these price rises come from, and can we expect even higher inflation?
The rising energy prices make for a significant part of inflation. One of the biggest industries that increased their prices is in the energy market, which affects other markets as well. Due to Covid-19, initially, the energy demand globally decreased because less was being produced. However, as the world opened again, demand for products increased rapidly and with many energy factories in China still closed, it was difficult to catch up and match this demand. Moreover, a similar problem occurred in transportation, making transportation costs almost seven times as high (Heijn & Van Wensen, 2022).
There is good news on the horizon; many experts claim we are currently at the peak of inflation and predict inflation will decrease. This is mostly because inflation is measured in comparison to the previous year. In 2020 inflation was relatively low, and in 2021 very high. Because gas prices are even decreasing, inflation will likely diminish too. We might not immediately see this in the supermarket, as producers calculate the rising costs of their products (Heijn & Van Wensen, 2022).
Experts fear that inflation might be more stubborn than expected. If financial markets become too unstable, parts of the population might be highly affected if wages do not increase with inflation. This could lead to dissatisfaction in society, and rising wages could be unavoidable. If this happens, inflation might rise more than expected. But in most models, this scenario is not the most probable (Heijn & Van Wensen, 2022).
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