The average prices were almost 12 percent higher in March this year than a year earlier, according to Statistics Netherlands. Casper de Vries, Professor of Monetary Economics at Erasmus School of Economics, explains the consequences of the rising inflation in an interview with Radio Rijnmond (1 April 2022).
Higher inflation
The Professor reasons that the higher prices are not completely caused by the war in Ukraine. The prices were, in fact, rising already before the war erupted. According to de Vries, everybody will feel the higher inflation. What started with higher energy prices, has already spilt through to higher food prices, and it will spill through even further. Moreover, high inflation leads to uncertainty, which may lead to fewer investments by businesses. All of these factors make the chance for a recession quite high.
Should we be worried?
De Vries reasons that the Netherlands is a relatively wealthy country, therefore we can allow ourselves to take this hit. This has allowed us to reduce the excise duties on fuel and VAT on gas and electricity as well as compensate minima-households. But, he stresses that we should also accept the reality that we have collectively become poorer than before, and brace ourselves for all that is yet to come.
An advantage
Although there are many disadvantages to higher inflation, the Professor argues that there can be advantages to it as well. For instance, homeowners with a mortgage may gain from this inflation. When inflation rises, interest rises. But many people have fixed the interest rates on their mortgages for a longer period, so their interest rates are not going to rise with higher inflation.
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For the whole item by Radio Rijnmond, 1 April 2022, click here.