Dutch central bank leader Knot concerned after employees win substantial wage increases

There are ongoing concerns about large wage increases of 10 percent or more in agreements between unions and employers in some sectors, said Klaas Knot, the head of De Nederlandsche Bank (DNB), the central bank of the Netherlands. As a result, it may become more difficult to put an end to the significant inflationary price increases in recent days, Knot indicated in a round table discussion in the Tweede Kamer, the lower house of parliament.

“If we want to return to 2 percent inflation in a sustainable manner, we will also have to return to 2.5 to 3 percent wage inflation,” Knot said in response to questions from MPs. The conversation then becomes about the percentage to which the wage increases will have to weaken in the long term. “I’m concerned that that phase-out process will be too slow anyway and will meet a number of obstacles, including the more recent wage agreements. And I’m especially thinking of the double-digit ones.”

On Tuesday it was announced that supermarkets want to offer their employees a 10 percent increase in pay. Earlier, a wage increase of 10 percent was already agreed for staff of many supermarkets’ distribution centers. This happened after strikes that also caused empty shelves in many grocery stores. Additionally, cleaning crews will also receive an additional 12 percent pay increase over several phases. Significant wage increases have also been agreed in other collective labor agreements.

Knot already warned last month during an episode of TV program Buitenhof that if the unions get their way and wages rise by 10 percent or more, a wage-price spiral is imminent. In such a scenario, people will have substantially more money to spend, they will then spend more and companies, which are seeing their costs increase further, will be encouraged to raise their prices even higher. That makes it more difficult to bring inflation down.

As DNB president, Knot is one of the policymakers at the European Central Bank (ECB). With its interest rate policy, the ECB aims to have inflation in the eurozone back to the target level of 2 percent by the first half of 2025. So the numbers have to come down quite a bit for that to happen, Knot indicated. He repeated that several more interest rate hikes are probably needed.