Dutch Inflation: Developments, Drivers, and the Risk of Wage-Price Spiral

Abstract

: Global inflation surged in 2022, driven by high gas price growth. With Russia being a key supplier of energy products, the start of the war in Ukraine has led to strong inflationary pressures in the euro area (EA), given the region’s significant exposure to the Russian gas. The price shock has been particularly strong in the Netherlands, largely due to the larger share of gas on the energy mix compared to other peers, making the country vulnerable to changing market conditions. Against this background, this paper explores the nature of the recent acceleration of inflation in the Netherlands, taking into consideration different perspectives. The first section presents different measures of inflation and the methodological discrepancies among the indicators considered. Secondly, the paper presents an empirical assessment on the main drivers of inflation through a Phillips Curve estimation. The third section analyses the particularities of the Dutch energy mix compared to other EA peers, and the pass-through from wholesale to retail gas and electricity prices. In addition, as increasing inflation has raised concerns for a potential wage-price spiral, the fourth section presents empirical evidence on how the distribution of the total remuneration of productive factors -capital (profits) and labor (wages)- worked in the past. Finally, the paper summarizes the main findings of the study and further potential areas for research.