De Nederlandsche Bank chairman Klaas Knot warns against over-optimism about falling gas prices. There is a spectacular fall, but that doesn’t immediately mean the end of high inflation. BNR’s in-house economist Han de Jong understands Knot.
Knot said on the TV show WNL Sunday that inflation in the Netherlands will be lower this year than last year. An economic downturn will be mild, according to Knot. Yet the head of the DNB warns against too much optimism. De Jong: ‘Total inflation is now decreasing, mainly due to falling gas and oil prices. But core inflation, calculated without food and energy, continues to rise.’
Furthermore, there is a lot of uncertainty in the energy market, says De Jong. ‘Last year the price of energy rose enormously, but it also fell quite spectacularly. Despite this, the price of both oil and gas is still high. So we can’t have full confidence in this market.’
Bond market
At the same time, it appears that Knot is no longer taken as seriously by the bond market. The prevailing belief is that the European Central Bank will not raise interest rates again and does not intend to keep them high for any longer.
‘Central bank interest rates determine the interest rate for short-term loans, while the interest rate for long-term accounts is determined in the capital market. Now you see that both rates are the same and this is annoying for the ECB. Because if capital market interest rates were slightly higher, the economy would cool down and inflation would decrease. And with that, the market would be part of the ECB’s job, so I think Knot also wants to get capital market interest rates to go up a bit.’
EU-US
Last week, European Commission President Ursula von der Leyen announced a plan to boost Europe’s economy in response to Inflation Reduction Act (IRA) in the United States. The IRA is meant to support sustainability activities and protect American industry, making it nothing more than a “nationalist economic agenda,” according to Han de Jong.
A European response to this is justified and logical, says De Jong. ‘European business is going through a very difficult time. But I don’t know if state support, more money and subsidies are the answer.’ “We already have the Corona Recovery Fund and we know from state aid that it causes laziness in the business community. You also support companies that are actually no longer profitable.’
He therefore sees more in cooperation, for example in order to be able to compete with China. The trade war with China began under Trump and many protectionist measures against Europe came into effect during his presidency. Working together would be better, but for now it mostly is America first and also First in Europe.’
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.
