On this blogsite, I have written a
number of articles upon deflation (see also this
link), as this economic ‘Bogeyman’ is lurking around the corner in many
Eurozone countries. One of those countries is The Netherlands, where the
consumers went ‘on strike’ a few years ago and ‘austerity became the new
reality’ for many of the lower and mid-class people and families.
Although deflation can appear as a favorable development for
cash-strapped people – the purchase power of their income rises in time of
deflation –, the phenomena is like a death trap where you can get in easily,
but “never” get out of anymore.
In deflationary
times everybody remains waiting until prices drop even further, for all things that
people don’t need immediately. In reality, this is almost everything, except for food,
unavoidable services and cheap, day-to-day non-food consumption goods.
‘A new house, a new car, new clothes or a new television set?! Expensive travels?! Wait…
next week it will be cheaper’.
And that is of course what indeed happens to
those products eventually…
This phenomena causes the economy to almost totally stall,
as everybody is waiting for tomorrow’s prices, instead of consuming their
income today. This is what has been happening in Japan since the nineties and
this is what more or less has happened in The Netherlands, since 2008.
This death trap phenomena was the reason that last week’s news
message from the Dutch Central Bureau of Statistics (CBS), about the December 2013 inflation rate, seemed comforting at first glance:
- Prices petrol and clothes drive up inflation
- Inflation rate over 2013 averages 2.5 %
- Eurozone inflation rate down
The most recent
figures released by the Central Bureau of Statistics show that the inflation
rate in December was 1.7 %. In November, consumer prices were 1.5 % higher than
one year previously.
Clothes and petrol
prices contributed to the higher inflation rate. During the December sales
prices were not reduced as much as in previous years, resulting in a higher
inflation.
With 2.5 %, the
average inflation rate over 2013 was the same as in 2012. Government measures
largely accounted for the higher prices in 2013. At the end of 2012, the VAT
rate was raised and in 2013 insurance tax, energy tax and excise duty on
alcohol and tobacco were raised. Without these government measures, the
inflation rate would have been 1.3 %.
The inflation rate in
the Netherlands calculated on the basis of the European harmonised method
(HICP) rose to 1.4 %, i.e. 0.2 % above the November level. According to
Eurostat, the eurozone inflation rate fell to 0.8 % in December. The eurozone
inflation rate over November was 0.9 %.
That the prices for clothes increased slightly in 2013, does
not sound unlogical, in my opinion. As a result of the terrible accidents
in Bangladesh and Pakistan during the last two years, a few large enterprises in the clothing
industry entered into a covenant to prevent these kinds of accidents from
happening again.
Although I can’t proof it, I suspect that the extra expenses
that this covenant caused, are now processed in the purchase AND sales prices for clothing.
That is a blessing in disguise, as far as I’m concerned.
Nevertheless, this CBS news message already disclosed the real reason for most
of the rising inflation in December: the Dutch central and local governments that raised various taxes, duties and levies.
And – as if the institute considered this first warning to
be not enough – the next day the CBS dropped the following bombshell with respect
to the Dutch inflation for 2013:
The considerable price
rises in 2013 were mainly caused by changes in tax legislation. The price of
rolling tobacco and stamps increased most rapidly, whereas the price of
telephones decreased most rapidly.
The price of rolling
tobacco increased by nearly 16 % in 2013, largely due to the higher excise duty
rate introduced last year. On 1 January 2013, the excise duty on tobacco was
raised. In the first months after the introduction, retailers still sold their
old stocks, so it lasted several months before consumers paid the higher excise
rate.
In January 2013,
insurance premiums were increased significantly. The insurance tax rate was
raised from 9.7 to 21 %. On average insurance premiums went up by nearly 8 %.
Premiums for fire and theft insurances were nearly 14 % up. As the
supplementary health insurance is exempt from insurance tax, the price increase
for health insurances remained modest.
Mail and parcel
services were in the top 5 of products affected most by last year’s price
increases. On 1 January 2013, for example, the price of stamps was increased
from 50 to 54 eurocents. In August, the price was increased further to 60
eurocents. The special price of stamps in December was also higher compared to
previous years.
The price of
telephones was reduced by nearly 9 % in 2013. Prices for home and garden
maintenance services were also lowered as, since March 2013, the VAT rate for
these services was temporarily reduced from 21 to 6 %. Prices for overnight
stays in accommodations were also reduced in 2013.
There you have it! The government is almost completely
responsible for the rising prices in The Netherlands, while the only other
categories of good and services with significantly rising prices were: the postal services
and insurances.
The former is run by PostNL, a former government enterprise with still a few monopolies intact: in fact, until this day this company can almost
ask what it wants for its mail services, as Dutch citizens can hardly go
anywhere else with their letter or postcard.
The other parties with rising prices were the insurance
companies; the larger share of these price rises were to blame on higher
insurance tax: also government-based increases.
So the only authority that stops The Netherlands from
hitting near-deflation price increase rates for goods and services… is the
Dutch government.
That is something that makes you think, doesn’t it?!
No comments:
Post a Comment