Inflation will remain high until 2023: Dutch central bank president

The Netherlands and the eurozone will likely still be affected by high inflation at least into the summer of 2023, according to the president of the central bank of the Netherlands (DNB).

President Klaas Knot of DNB estimates that the period of increased inflation will last more than a year and assumes that the European Central Bank (ECB) will hike interest rates in the fourth quarter of this year. The head of the Dutch central bank, who is also one of the policymakers at the ECB, made the prediction on the TV program “Buitenhof.”

In recent months, inflation has soared to its highest level in decades. Daily life has become considerably more expensive largely due to the sharp rise in energy prices, but many products –– for example, in the supermarket –– have also gone up in price. This can especially create problems for Dutch people who already do not have extra money to spend, Knot said.

NOS reported that Knot analyzed future inflation with his ECB colleagues last week. “I now believe, based on this analysis, that inflation in the eurozone will remain above 4 percent for most of this year,” Knot said, according to NOS.

The DNB president pointed out that the causes of the high inflation mainly lie outside the Netherlands. However, he has not yet identified a wage-price spiral, where companies increase wages for employees even more sharply, thereby driving inflation even more. That is why Knot assumes the high price increases will come to an end at some point, he said.

Raising interest rates is widely regarded as a means of combating high inflation. According to Knot, the ECB has more tools at its disposal than just hiking its own interest rates. First, the ECB's support programs must be phased out. Measures are already being taken to this end, and, according to Knot, this has already caused interest rates on the financial markets to rise somewhat.

Based on all current data, Knot expects a first interest rate step of 0.25 percent in the fourth quarter. A further step will then take place in the spring of 2023, he believes.

ECB President Christine Lagarde already hinted on Thursday that an interest rate hike may not be long in the waiting. She emphasized that the situation here is different than in the United States, where interest rates are likely to be raised sooner.

Knot also discussed the Cabinet plans for the coming years on “Buitenhof.” He believes the plans are ambitious in areas where the necessary ambition was previously wanting.

Knot does, however, share the opinion of many economists that the government relies heavily on large investment plans in its approach. He believes that the policy could be more efficient if more is done with, for example, tax incentives and the pricing of environmental pollution. Like other experts, Knot also believes that the government should be careful when increasing the national debt.