The government and social partners should steer clear of emotional appeals for wage increases and warnings of hoarded inflation. “The more they get under the central bank’s feet, the deeper the recession and the more the central bank will have to intervene to break the inflationary pressure,” says BNR in-house economist Han de Jong.
De Jong responds to the statements of Klaas Knot, president of De Nederlandsche Bank. He warned yesterday on the Buitenhof TV show that inflation could become more stubborn if wage increases exceed six or seven percent, as demanded by the unions.
Wage-price spiral
“You cannot blame the unions for defending the interests of their members. And given the tight job market, they’re in a strong negotiating position. But Knot is right,’ says De Jong. ‘Wage increases, as now requested by FNV and CNV, lead to higher costs for companies. They’ll broadcast it and then you’ll get caught up in a wage-price spiral.’
De Jong goes a little further than Knot, who therefore indicates that there is room for a salary increase of six to seven percent. But this too drives up inflation. Because this cannot be reconciled with a two per cent inflation rate.’
Economic situation
Collective agreements are concluded for a longer period, companies cannot avoid this when the economy gets worse or when the economy goes into recession anyway. President Piet Fortuin previously said on BNR that the unions take into account the economic situation. However, the unions believe that the companies make large profits, so there is room for a substantial increase in wages.
“But that’s not the case for all companies,” says De Jong. ‘The differences between companies are very large. Albert Heijn made more profits, but mainly from the United States. In the Netherlands, profits have actually gone down.’ It is also unwise to talk about inflation in an atmosphere of reproach, says De Jong.
“Keep calm, like Knot and Fed chief Powell say”
According to De Jong, high inflation is always based on a macroeconomic imbalance. ‘The current economy in the Netherlands is now overheated, the demand for goods and services is greater than the potential supply. So it is common for companies to make high profits. This will automatically drop again when the economy cools down again, because companies will then have to compete with each other.’
Cold head
Unions should therefore avoid moral condemnation. “Keep calm, as Knot and Fed chief Powell say,” De Jong stresses. “To bring inflation down, a tight monetary policy is needed. The ECB is now doing the same. But in addition, the government and social partners must not get in the way of the central bank. The more they do this, the deeper the recession needed to bring down inflation.”
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.
