For the first time in ages, inflation in the Netherlands has fallen below 10%, and while that sounds good, economist Edin Mujagic has bad news. «Inflation has actually fallen to 9.9%, but according to the Dutch calculation method. So we’re not there yet.’
According to Mujagic, if inflation is calculated according to the European calculation method, a different conclusion can be drawn. “We’re not there yet,” he says. ‘But it’s still a relevant point of reference: inflation is falling from over 14% to 9.9%. It’s still high, but in the meantime it’s very difficult to avoid the feeling that the peak is behind us.’
Slow-motion inflation
Although the peak of inflation – according to Mujagic – has passed, the prices of food, drinks, meat and especially dairy products are rising. “You’ll see the inflation numbers that we’re seeing coming down,” he continues. “But now inflation is spreading very well to all pores of the economy. Slow-motion inflation, shall we say, is slowing down, but it’s going to be broader in the economy, so we’ll notice it more often.’
Yet there are other countries that are confident that inflation will come down. Canada is a good example of this, says Mujagic. “The Canadian central bank recently raised interest rates for the seventh time in a row, to 4.25%,” he says. “This is not very remarkable, but they have now said very clearly that it can be assumed that in all likelihood it could be the last rate hike.”
Herald
A forerunner, thinks Mujagic. He also mentions that Canada was one of the first central banks to start raising interest rates. “The ECB and the Fed have hinted at the same thing in recent weeks, so you can see a message like this from Canada as a harbinger of what we’re likely to hear from the Fed and the ECB as well. In other words: the interest rate hikes are not over yet, but the end is in sight.’
However, Mujagic has a comment on Canada’s situation. “We have to look at the last fifty years for that,” she continues. ‘The accumulation of debt of the West. This can continue to go well only as long as you, as the central bank, ensure that with each increase in interest rates, the peak of the new interest rate is lower than the previous peak.’
“They can’t let it come to this”
And that’s an important issue, says Mujagic. The Canadian central bank now uses an interest rate of 4.25, but in the summer of 2007 the interest rate was 4.5%. And the same goes for the Fed. “That interest rate is now at 4%, but the Fed wants to go to 5%. But the interest rate in 2007 was 5.5%. So here you can see very well that they can’t actually allow the interest to rise above the 2007 interest, because the debts have risen considerably since then.’
He concludes: ‘The interest rate level at which pain can become unbearable for too many parties is now much lower. And what the Canadian central bank has now done is a wonderful textbook example. They have indeed raised interest rates, but it is no coincidence that they will stop just short of the 2007 level. You will see that in other central banks as well.’
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
