Boot calls inflation “a kind of redistribution mechanism without any checks.” This means that the weakest groups are hit first. “Inflation is something – and unexpected inflation even more – very unpredictable,” says Boot. “We never know when it will go away. Also, we have now learned that once the inflation genie is out of the bottle, it is very difficult to put it back.’
“Once the inflation genie is out of the bottle, it’s very hard to put it back in”
He stresses that the unpredictability of inflation lies mainly in the level and how it will develop over time. Especially as we come from a period in which inflation was almost absent; the most predictable inflation environment there is according to Boot. “When there is almost no inflation and nobody takes it into account.”
Positive effects?
According to Boot, however, there are also positive effects with slightly higher inflation. It is precisely the blocked groups that see their debts decrease. Most debts are outstanding at fixed interest rates. Boot says it’s a sign that people aren’t bothered by the ECB’s slow interest rate hike. “Even the ECB will have to continue doing this for some time,” she says. “Because it is precisely interest rate hikes that can ensure that inflation is pushed back.”
It also helps labor organizations and unions in the saddle, according to Boot. Now they can bet on cents instead of percentages, she thinks. “By this they mean that everyone receives a fixed remuneration in euros, which means that people at the bottom receive more inflation correction than at the top,” continues Boot. ‘In percentage terms, 100 euros at the bottom is much more than at the top.’
More burden
Boot therefore argues that the lower end is more affected by inflation anyway. Just as the inflation correction is stronger for the bottom, the cost of a full cart of groceries is higher in percentage terms for the same bottom. And so the wage structure has to be increased structurally, Boot says, especially since low wages (and thus also staff shortages) are a major part of the current problem in the Netherlands.
He argues that there is a permanent shortage of people in the Netherlands and that innovation is needed to reduce the need for people. “But we left the labor too cheap at the bottom,” she continues. “We got those people with benefits out of the water, so we actually subsidized cheap labor for the business community. Schiphol – a government company, of all things – was able to hire those people very cheaply through offices, because the government gives those people a premium because otherwise they wouldn’t work at all.’