Dutch Inflation drops to 0.2% YoY in September due to sharp fall in energy prices

Dutch inflation registered a drop to 0.2 per cent on a year-on-year basis in September, primarily driven by a sharp decline in energy prices, as reported by Statistics Netherlands (CBS) on Tuesday. The decrease marks the first instance since August 2021 that the Dutch consumer price index has fallen below the European Central Bank's target of 2.0 per cent, confirming the preliminary reading reported at the end of September.

In August, consumer prices had surged by 3.0 per cent year-on-year, as stated by CBS.

In a press release, CBS attributed the easing of inflation primarily to energy prices, which had fallen significantly from their elevated levels a year earlier. Specifically, the drop in prices for gas, electricity, and district heating played a major role in this decline, outweighing any increases seen in motor fuel prices.

Economic forecast for Netherlands

After experiencing robust GDP growth in 2022, the Netherlands saw an economic slowdown in the initial half of 2023. In the first quarter, there was a 0.4 per cent quarter-on-quarter decline in real GDP, followed by a 0.3 per cent decrease in the second quarter. High inflation rates have eroded the purchasing power of households, resulting in reduced consumer spending, according to the official website of the European Union. 

Simultaneously, a weakened global economic environment has led to a contraction in exports during the first half of 2023. Despite the decline in economic activity, the labour market remains tight, with historically low unemployment rates and significant wage growth. The uptick in wage growth, coupled with a gradual decrease in inflation rates from elevated levels, is expected to drive a modest recovery in real wages and prevent further declines in consumer spending during the latter half of the year. The projected annual growth rate for 2023 stands at 0.5 per cent, marking a downward revision of 1.3 percentage points from the Spring Forecast, primarily due to the less favourable GDP growth performance observed in the first half of the year.

(With Inputs From Reuters)