The inflation monster still does not lower its head in Europe. But in one place prices have entered a downward phase.
The Netherlands is now in deflation (i.e. a negative year-on-year inflation rate in September). Specifically, prices recorded a drop of 0.3% this month. A unique case, that of Holland, which demonstrates the disparity in the economic situation that the EU countries are experiencing.
Overall, there are large differences in annual inflation rates in September across euro area countries, with a high of 8.9% in Slovakia, 4.3% in Germany and a low of 0.7%. in Belgium, according to the statistics released yesterday by Eurostat.
There are several explanations behind this surprising fact. From a change in calculation when measuring the impact of energy by the Dutch authorities, to the difficult economic situation that the country of tulips is experiencing.
Indeed, after strong GDP growth in 2022, the Dutch economy cooled in the first half of 2023, with real GDP declining by 0.4% in the first quarter and 0.3% in the second. That is, technical recession. In this context, demand suffers and consumption is gradually reversing.
“High inflation rates eroded household purchasing power, leading to a decline in consumer spending. At the same time, a weakened external environment has led to a contraction in exports in the first half of 2023,” explained the European Commission in its latest report on the country.
Specifically, according to price measurements in the Netherlands in September, energy was 38% cheaper than the previous year while the average prices of food and beverages were still 10% higher than in September of last year. It should be remembered that the inflation rate in the Netherlands reached a record level of 14.5% after the Ukrainian war.
But Dutch deflation may also be one of the first signs that the restrictive policy of the European Central Bank (ECB) is beginning to leave its mark. And that perhaps the era of inflation in Europe could have begun to change its cycle.
In fact, inflation in the eurozone fell in September to its lowest level in two years. The rise in consumer prices fell to 4.3% year-on-year in the 20 countries that share the single currency, after 5.2% in August. “This assures us that the ECB has finished raising interest rates,” said Jack Allen-Reynolds, an expert at Capital Economics.
