Inflation in the Netherlands is gradually decreasing from last year’s record levels. The figure is now over seven per cent, after over 14 per cent in September and over nine per cent in December. According to De Jong, the drop will be less pronounced. “There will still be a seven before the decimal point, I expect.”
Basic inflation
The decline that began in September is due to the decline in energy prices. However, core inflation, which excludes energy and food prices, is still high. In fact, this is an increase. Our core inflation was 5.7 in September but gradually increased to 6.4 in January. And the ECB is obviously very concerned about this,’ says De Jong.
“They won’t be happy until core inflation is back to two. But we’re not there yet.’ And this means that a new interest rate hike is certain. This has to do, among other things, with relationships within the central bank’s board of directors.’
Hawk vs Dove
De Jong: Economists make a distinction between what we call pigeons and hawks, says the macroeconomist. ‘Pigeons are administrators who aren’t afraid of inflation and don’t want interest rates to go up. The hawks are afraid of it and want to reduce inflation by raising interest rates.’ Chairman Klaas Knot of De Nederlandsche Bank is such a hawk. And those hawks are now in the majority. “So I think interest rates will definitely go up. At least two, maybe three times. And all together at least half a percentage point, but maybe a whole percentage point».
“Something crazy is happening right now.”
European Central Bank President Christine Lagarde will announce a new interest rate decision on 16 March. On Thursday 2 March, both Statistics Netherlands (CBS) and the European Statistical Office (Eurostat) are to publish data on inflation in the eurozone.
Losses to the ECB
Incidentally, the European Central Bank itself also has to keep an eye on the wallet, says De Jong. “Something crazy is happening.” Central banks have bought a lot of bonds in recent years. The interest rate was zero at the time, but now they have increased the interest themselves. This means that the ECB has assets that do not generate income, but on which it has to pay interest. “It’s interesting to see how high these losses will be and what the end result will be,” says De Jong.
The failure of the ECB will not happen, it is very unusual. But it is of course possible that they suffer so many losses. Then the ECB has to knock on the government’s door to be recapitalised. This is annoying.’
Incidentally, this has no consequences for the European monetary system. «This is independent of the financial position of the central bank. But it will cause problems, that’s for sure.’