Inflation fell to 5.7% this month, down from 6.1% in May. And according to Bas Jacobs, professor of economics and public finance at VU Amsterdam, this is “excellent news”.
According to Jacobs, the decrease is not the result of the new calculation method. “Because even if you calculate the calculation method by carrying over this month’s figures, you also see that inflation was higher in previous months than it is now. So regardless of the method, inflation is going down. This is great news,’ says Jacobs at BNR Business.
However, he believes that the new calculation method has ensured that we now have slightly lower inflation than we previously thought. ‘The old method of calculation was based on the energy contracts people could now get on the market, but not necessarily on the energy contracts they already had. As a result, inflation was initially very high. This has now been corrected by a new set of calculations. Jacobs notes that these new sequences are invalid when computed backwards; old inflation data remain valid.
Further rate hikes
Although inflation is coming down, there are still rumors, including from Nederlansche Bank President Klaas Knot and ECB President Christine Lagarde recently pointing this out in Portugal, that it is still not enough. They support further rate hikes. Sensible? “I don’t know,” Jacos says. “I think their honest answer should be: I think we don’t know either, because we’re seeing all kinds of mixed signals.”
The ECB released new inflation data today and, according to Jacobs, headline inflation, as measured by the whole consumer package, will fall sharply. ‘But in the meantime we see that core inflation, from which you take energy and food prices, has increased slightly (0.1%). This gives all those central bankers headaches, because the underlying inflation rate is not getting better, it’s getting worse.’
At the same time, he believes there are some signs of a sharp decline in inflation. ‘I think the most important is the M3 money supply, which is the broader definition of money used by the ECB. We’re really seeing that decline and that also has something to do with poorer lending. Now we see in the figures that lending is declining very fast and that obviously has everything to do with the high interest rates.’
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.
