DNB president not afraid that strong wage increases will push inflation further up

Employers are doing their part to restore purchasing power, as wage settlements in collective agreements are now at 7.5 percent. This is the observation of Klaas Knot, president of De Nederlandsche Bank (DNB), in an interview with ANP. Although this means that wage increases are currently higher than inflation, he is not concerned that all these additional wages will continue to drive up the price level.

Knot has argued for some time that there is room for more wage increases in the corporate sector because many companies have high profits. "I said in December that wages could go up 5 to 7 percent. I'm sticking to that."

For a long time, companies seemed reluctant to offer more to their workers. But strikes have been plentiful lately, and the pressure to get a solid wage increase anyway seems greater than ever. This week, AWVN, the main adviser to employers on employment conditions, reported that wage agreements in March were above the rate of inflation for the first time in a long time, falling to 4.4 percent last month.

"We're actually at the high end of what's reasonable," Knot said of the wage increases. But he would have no problem if unions and employers agreed to more wage increases of that magnitude later this year. "I would be concerned, however, if it came to higher and higher increases," he said. Then a wage-price spiral would lurk, with people having significantly more money to spend and spending more, prompting companies to raise prices further.

For the time being, Knot doesn't feel that such a scenario is imminent. "The decline in inflation to 4.4 percent is mainly due to the fact that energy prices have fallen recently," The DNB president said. Adjusted for this, inflation is even higher, Knot stated. "And we also shouldn't forget that a lot of lost purchasing power has also accumulated in recent years. So it may well be that there will be a brief period when wage increases outpace inflation. Inflation will also take some time to subside."

According to Knot, the European Central Bank (ECB) is trying to contain inflation by raising interest rates. He expects this to have a significant impact in the second half of this year, although he acknowledges that this prediction is still fraught with uncertainty. He again called on the government to ensure that its fiscal policy does not continue to drive inflation. Knot feels that Minister Sigrid Kaag (Finance) is in line with him on this point, but the budget will be decided jointly by all Cabinet members.