Inflation is affecting more and more people, economic growth decreases

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The Dutch economy has emerged strongly from the coronavirus crisis, but the momentum is now starting to swing the other way. Increasing numbers of households are feeling the negative financial impact of high inflation, which is expected to bring consumption growth to a grinding halt, in the coming quarters. This is shown by the projections in the concept version of the Macro Economic Outlook (cMEV) published by CPB Netherlands Bureau for Economic Policy Analysis. CPB Director Pieter Hasekamp: ‘Households are feeling the impact of high inflation and this will have repercussions for the economy. There is a growing number of people already struggling to make ends meet and for whom the energy bill is threatening to become unaffordable.’

These projections form the starting point for the Dutch Cabinet’s final decision-making process regarding next year’s budget. On ‘Prinsjesdag’ (i.e. the day of the King’s Speech which includes the main elements of the government budget for the coming year, this year on 20 September), CPB will publish the definitive version of the Macro Economic Outlook (MEV), which also incorporates these latest decisions.

Purchasing power greatly reduced, while poverty increases

Wage increases are lagging behind the high rate of inflation, which is reducing average purchasing power by 6.8% in 2022.  In addition, there is inflation-related inequality: the lower the income, the greater the financial burden of inflation. Standard purchasing power is based on average inflation and, therefore, does not take into account these kinds of differences between households.

This is the first year that CPB’s projections include poverty development. Poverty is increasing, as inflation means that people need more and more money to meet their basic needs, while income levels are rising only slightly. As a result, the percentage of people suffering from poverty will increase to 7.6% in 2023, and for children this is even 9.5%. As is the case with purchasing power, these figures are an underestimation of the actual problems.