Dutch consumers more affected by inflation than expected: ING

Dutch consumers appear to be more shocked by recent price increases than experts had expected. This is what economists at ING suggest in response to the economic figures released this week by Statistics Netherlands (CBS). Although the economy grew considerably in the second quarter, consumer spending unexpectedly fell.

Initially, experts thought that domestic consumption would be one of the most important drivers of economic growth. "After all, purchasing power is rising considerably, particularly due to collective labor agreement wage increases that have been far exceeding inflation for some time now. Consumer confidence was also higher in the second quarter than in the first."

According to ING, the fact that the Dutch did not massively increase their spending seems to be partly due to increased inflation expectations among consumers. The bank 's experts point to research by the European Commission. This suggests that consumers in Europe are "more pessimistic than can initially be explained by the development of hard economic developments in incomes, unemployment, interest and actual inflation".

In other words, people can sometimes expect stronger price increases than they have experienced. "This can also apply to Dutch consumers, as consumer confidence in the Netherlands is still at a low level."

According to ING, consumers can feel high inflation if highly visible or frequently purchased products increase in price above average. "In the second quarter, two developments could very well have played a role in our country, although it remains speculation," according to the experts. They are referring to the increased excise duty on tobacco, which made a pack of cigarettes more expensive. In addition, many people knew that their rent would increase significantly from July.

The rent increase averaged 5.5 percent, the largest increase in over 30 years. "Many consumers were informed about this by their landlord in the second quarter, they may have been shocked and therefore have been a bit more cautious with their consumption."

Furthermore, the economists think the bad weather could have played a role. They are not worried yet because these are probably temporary effects. They do not think that inflation will increase much further and expect consumption to increase again at some point.

Overall, the Dutch economy grew by 1.0% compared to the previous quarter, mainly due to growth in the trade balance and, to a lesser extent, increased government consumption. At an international level, the Dutch industry is benefiting from lower energy prices and a weaker reduction in excess inventories, which has a positive effect on exports, according to ING.