Inflation will drop further, but food prices remain high: Rabobank economist

Inflation is expected to cool down significantly, mainly due to falling energy prices, according to Rabobank economist Stefan Groot. However, he said that the prices for food and groceries are not expected to drop quickly but rather stabilize.

Based on an initial estimatation, Statistics Netherlands (CBS) reported on Monday morning that prices in July increased by 4.6 percent year-on-year. This marks a further slowdown in inflation, which stood at 5.7 percent in June. Food prices remain relatively high. The average price increase in July was 11.6 percent, compared to 12.6 percent in June.

Groot anticipates that these year-on-year price increases will gradually continue to decrease, down to 1.2 percent next year. "However, it is not expected that prices will fall. The increased costs for purchasing and raw materials have already been incorporated into supermarket prices for consumers. But the margins will remain under pressure, even though the peak of price increases is over,” he explained.

Groot noted that the so-called core inflation remains "stubborn." This is the inflation figure adjusted for highly fluctuating energy and food prices. "Core inflation is 7 percent for this year and is expected to decrease to 3.6 percent next year. However, this is still significantly higher than the target set by the European Central Bank (ECB)," he said.

The ECB's inflation target is 2 percent. However, current inflation in the eurozone is still well above that target, the European statistical agency Eurostat reported on Monday morning. In July, it stood at 5.3 percent. In particular, consumer prices for food, alcohol, and tobacco in the euro area are still increasing substantially in price.