High inflation in the Netherlands is a temporary phenomenon

High inflation in the Netherlands is a temporary phenomenon

The high inflation in the Netherlands is a temporary phenomenon according to the Dutch Central Bank (DNB).

Prices in the Netherlands are rising sharply. In the past ten months, inflation according to the European Harmonised Index of Consumer Prices (HICP) surpassed the 3% level nine times. Government measures are pushing up inflation, which is why DNB expect the current high level of inflation to be temporary. The effect of government measures on inflation will ease off significantly in the course of this year.

In July inflation in the Netherlands came to 3.1%, almost twice as high as euro-area inflation. Nevertheless, an inflation differential of this size is not exceptional. Figure 1 shows inflation in the Netherlands and the euro area since the start of EMU in 1999. Prices in the Netherlands rose the most and the inflation differential relative to the euro area was the most pronounced at the start of this century. In April and May of 2001 inflation in the Netherlands was as high as 5.5%. In the same year, the inflation differential relative to the euro area repeatedly recorded more than 3 percentage points.

On average prices have risen 2.3% in the Netherlands and 2% in the euro area since the start of EMU. Especially at the start of the monetary union, inflation in the Netherlands was higher, and after that it was often lower than that in the other euro-area countries.

According to our June forecast, inflation will remain high at 2.7% this year (see our Economic Developments and Outlook). Inflation is expected to drop sharply in October as the effect of the VAT increase will unwind. DNB estimate inflation of 1.6% and 1.5% in 2014 and 2015, respectively, which are more fitting levels for the state of economic activity.

Source: dnb.nl

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