ABN AMRO BANK N.V. Since economies have been reopening worldwide, the prices of raw materials and goods transport have risen sharply. In the Netherlands, inflation has also risen rapidly in recent months. Should we be worried about high inflation? According to the ABN AMRO Economics Department, this upswing in inflation is temporary. Inflation is expected to remain below 2 percent in 2021 and to drop to 1.2 percent in 2022. But what does that exactly mean?
Globally, there is currently economic recovery across the board, buoyed by the vaccine rollout and a bounce back in consumer spending Consumer confidence has improved, and this led to strongly growth in demand for products in the second quarter of this year. "The cause of the rising consumer confidence is obvious," states Nora Neuteboom, one of the report's authors. "This is due to the reopening of the society in many countries, i.e. the end of lockdowns and the lifting of restrictive measures as a result of the corona pandemic."
"It's a simple economic law," Nora explains, "demand rises, supply lags, scarcity occurs and then prices rise. So the problem is on the supply side: the production. At the beginning of the pandemic, demand was low, the outlook was bad and people scaled back production. Now during the reopening, business failed to anticipate the rapid increase in demand. This is mainly reflected by higher raw material prices, which in turn feed through into higher prices of finished products."
The Economic Bureau expects inflation to remain below 2 percent in 2021 and to fall to around 1.2 percent in 2022. The trade disruptions and higher commodity prices are temporary. The supply of goods will soon return to previous levels. There are the slightly higher labour costs due to the increase in wages, but the 2-3 percent wage growth will not lead to excessive inflation. From the consumers' side, Nora also expects price pressures to remain muted: "Despite higher wages, real disposable income is declining in 2022 and thus consumer demand is normalizing. In addition, we do not expect a major spike in consumption due to the excess savings. "We will spend a bit more, but we will remain cautious and continue to stash money away for a rainy day," Nora concludes.
The report by Nora and her colleagues Jan-Paul van de Kerke and Piet Rietman is only in dutch available and can be found on ABN AMRO Insights:
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ABN Amro Bank NV published this content on 18 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 October 2021 12:41:05 UTC.
