Threat of high inflation fading

24/12/2008 15:00

Dutch inflation was 2.3 percent in November 2008. This is substantially lower than a few months earlier, when steadily increasing oil and food prices threatened to push up inflation. In July and August inflation reached 3.2 percent. This was the first time since 2002 that average price rises were above 3 percent. Since September, however, the threat of high inflation has disappeared very quickly, mainly as a result of falling oil prices. Petrol, for example, cost 9.6 percent less in November than in October. This was the heftiest price drop in the last thirty years.

Prices of petrol, diesel and LPG

Prices of petrol, diesel and LPG

Collectively negotiated wage rates were 3.5 percent higher in November than twelve months previously. The increases in collectively agreed wages was higher than inflation in 2008. However, this does not necessarily mean that employees have seen their purchasing power improve. The reason for this is that their net wage depends on changes in wage tax and the premiums they have to pay for pensions and social insurance.

Inflation and collectively negotiated wage rates

Inflation and collectively negotiated wage rates

The increase in Dutch house prices slowed down substantially in the course of 2008. In November house prices (excl. new construction) were 1.0 percent higher than in the same month last year. Between 2003 and the beginning of 2008, increases in house prices had hovered around the 4 percent mark. In many other countries, too, house prices are rising more slowly; in some countries – Germany, the United Kingdom and the United States, prices are even falling.

House prices (excl. new construction) in the Netherlands

House prices (excl. new construction) in the Netherlands

Source:

Economic monitor