As a result of the large wage hikes currently underway, we won’t be returning to 2% core inflation any time soon, thinks BNR’s in-house economist Han de Jong. “There is already a wage-price spiral.”
It was announced on Friday that the pace at which prices are rising in the Netherlands has slowed significantly. In March, inflation fell to just 4.4%.
However, Han de Jong doesn’t think this means that the European Central Bank (ECB) will now suddenly decide not to raise interest rates anymore, or to adjust how often it does. “Central bankers need to control this energy price movement a little bit,” he says. “Excluding energy prices, inflation is still at 8 percent and hasn’t really come down yet.”
Plus, you also have to look at the bigger picture, says de Jong. ‘During the negotiations of the collective bargaining agreement, we see quite large wage increases. The collective labor agreements stipulated in March even provide for an average wage increase of 7.6 per cent on an annual basis’.
This is obviously far above the increase in productivity and thus gives an impetus to further price increases, argues the economist. “That 7.6 percent is higher than the inflation rate of 4.4 percent. Obviously this increases inflation. There is even talk of a so-called wage-price spiral.
Plus, higher wages make it harder to fight inflation. As a result, according to de Jong, it will be difficult to quickly return to underlying structural inflation of 2%, which has long been the goal of policymakers and central bankers.
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.
