Finance

Highest inflation since 2002, life significantly more expensive due to higher energy prices

This is reported by the Central Bureau of Statistics (CBS) today. This means that a mix of groceries, services or subscriptions and energy that you paid 100 euros for last year now costs 103.40 euros.

Strongest increase since 2002

In September inflation was still 2.7 percent. The last time annual inflation exceeded three percent was in 2002. And in 2001, life was even 4.5 percent more expensive, according to figures from Statistics Netherlands.

The current increase is mainly caused by the high energy prices, both for gas to heat your house and fuel to run your car.

Partly because the reserves were relatively small due to the harsh winter and the demand for energy worldwide has increased strongly due to the economic recovery from the corona crisis, gas for households became almost 31 percent more expensive than a year earlier. Electricity rose just under 40 percent in price compared to October 2020.

Clothes are also more expensive

The Dutch also had to pay more for motor fuels, an increase of more than 27 percent compared to a year earlier. In October 2021, consumers paid an average of 1.94 euros for petrol, 1.61 euros for diesel and 0.89 euros for LPG. In addition, the higher prices for clothing had an effect on inflation.

Too high inflation does not only lead to headaches for consumers, who suddenly have to spend a much larger part of their income on their living expenses. The concerns are shared in Frankfurt at the ECB headquarters. The European Central Bank is targeting inflation of around 2%.

Fear of deflation

With an inflation of about two percent, life does not become much more expensive, but there is no need to fear deflation: a fall in prices. This is initially good news for consumers, because you can buy more for the same euro, but there are also adverse effects.

It can cause companies to make less profit, which in turn can lead to cutbacks, writes Wim Boonstra, economist at Rabobank. And that in turn can lead to layoffs, pushing up unemployment, for example. And that in turn is bad for wages, because they generally rise less rapidly when there is high unemployment.

European calculation

According to the European harmonized method of calculating inflation, inflation in October was even higher than in the calculation by Statistics Netherlands.

According to this method, consumer prices rose by an average of 3.7 percent. That is slightly less than in the entire eurozone. Inflation there rose to 4.1 percent on an annual basis in October, the highest level since July 2008.

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