Dutch inflation rate falls to 3.8 percent in 2023, compared to 10 percent in 2022

The annual inflation rate in the Netherlands was estimated at 3.8 percent in 2023, according to the first calculation from Statistics Netherlands (CBS). The initial figure, which will be refined further in the coming week, shows a strong decrease compared to 2022, when the rate of inflation was 10 percent. However, the increased cost of goods, especially groceries, remained exceptionally high from a historical perspective.

Falling energy prices were the main driver in pulling down the inflation rate over the past year. Natural gas came down from the record high set in the autumn of 2022 due to the war in Ukraine.

But even when not accounting for energy in cost of living calculations, prices have been rising less rapidly since April. In December, this rate of inflation was still 3.4 percent, compared to 4.2 percent a month earlier and 8.1 percent at the peak in February and March.

In December, inflation including the energy bill amounted to 1.2 percent compared to the same month in 2022, while this rate was still 1.6 percent in November. From November to December, looking only from month to month, prices remained approximately the same.

Energy and fuels together were on average almost a quarter cheaper, 24.6 percent, when comparing prices last month to December 2022. Prices were 25.3 percent lower when comparing November to the same month in the previous year.

At the same time, the prices for food, drinks and tobacco rose the fastest, by more than 5 percent. In November this increase was still more than 7 percent.

Services were about 4 percent more expensive than a year earlier, roughly the same as in November. Industrial goods apart from energy and fuels were priced 1.1 percent higher in December 2023 versus the same month a year earlier. That rate was 2.6 percent in November.

European central banks try to bring the inflation below 2 percent by raising interest rates. This is expected to be successful in the Netherlands by the end of this year. By raising the cost of lending, central banks aim to reduce the amount of money in the economy and thus reduce demand for products. The idea is that this method will prevent prices from rising rapidly.

The particularly large price increases have ensured that Dutch people burn through their salaries much faster. Wages have also risen rapidly, but not yet at the same pace as inflation. As a result, purchasing power has, on average, declined considerably over the past two years.

These figures were all calculated using the consumer price index. Using the European harmonized consumer price index, or HICP, the quick estimate for inflation in December was 1.0 percent instead of 1.2 percent. In November, it was 1.4 percent and not 1.6 percent, compared to prices in November 2022.

The European Central Bank uses the HICP rates when setting monetary policy in the eurozone, even though most countries also have their own domestic index, the CBS noted. "The main difference between the CPI and the HICP for the Netherlands is that the HICP, unlike the CPI, does not take into account the costs of living in your own home. In the CPI, these costs are calculated based on the development of residential rental prices."