How does the Netherlands have an inflation rate of 17.1%?

Today has brought a couple of matters into focus and the Netherlands is turning out tp be rather a test case in several ways. We can open with one perspective which is that it is part of the inner core of Euro area nations. If the Euro were to break up then there are around 6 nations which could easily move into a new Germanic block and it is one of them. So one would not ordinarily expect it to be a type of economic outlier as it now is. So let me bring you up to date with this morning’s news from Netherlands Statistics.

Consumer goods and services were 14.5 percent more expensive in September than in the same month a year earlier, CBS reports. In August inflation was 12.0 percent. The rise in inflation was mainly due to the price development of energy.

I know the title says 17.1% and I will come to that as it reflects how you measure inflation and one of my long-running themes. But if we stay with this sequence we can see that it would appear some are questioning even such a relatively high number.

An inflation of 14.5 percent in September 2022 means that the prices of consumer products are 14.5 percent higher than in September 2021. So the inflation of 14.5 percent in September is not on top of the inflation of 12.0 percent in August.

If we move onto the causes then I am sure pretty much all of you will have guessed what for these purposes is public enemy number one.

Energy prices (electricity, gas and district heating) increased further in September. This has an increasing effect on inflation. Energy was 200 percent more expensive in September than in the same month last year. In August, the year-on-year increase was 151 percent.

Another factor was the expiry of the government pandemic help scheme for education.

The price developments of education and clothing also had an increasing effect on inflation. For a study program in the academic year 2021-2022 at vavo, mbo, hbo or university, students received a 50 percent discount on tuition fees, course fees or tuition fees. This was a government measure in connection with the corona crisis. This discount will no longer be available in the 2022-2023 academic year. This made education more expensive.

Also there was quite a surge in clothing prices.

Clothing prices were 8.0 percent higher in September than one year previously. In August it was 3.3 percent.

I am no expert in the Dutch sales season but it looks like the sales were in August although even so that is a very sharp move.

Even in these times some prices do fall and whilst it may be hard to believe with inflation at 14.5% these factors were in play.

The price development of petrol, on the other hand, had a downward effect on inflation. Petrol was 6.7 percent more expensive in September than in the same month a year earlier, in August it was 12.9 percent. The price development of a stay in a holiday park also had a depressing effect on inflation. The annual price increase decreased from 5.7 percent in August to 1.0 percent in September.

When I was a boy I used to enjoy holidays in a caravan park with my grandparents and wonder if the holiday parks are a modern version of that?

If you can get by without any energy then inflation is in fact much too high.

In September, consumer goods and services excluding energy and motor fuels were 6.5 percent more expensive than in the same month last year. In August, the annual price increase was 6.0 percent .

The Euro area Measure

We can now look at inflation calculated the European way which is the same as the UK CPI ( we copied this around 20 years ago).

Inflation in the Netherlands according to the European harmonized consumer price index (HICP) was 17.1 percent in September, Statistics Netherlands reported. In August it was 13.7 percent.

So we have a 2.6% gap and when we ask the Talking Heads question “How did I get here” you will find that as so often it is about housing costs.

The main difference between the CPI and the HICP for the Netherlands is that, unlike the CPI, the HICP does not take into account the costs of living in one’s own home.

This is really awkward on two counts for the Euro area measure. You see it includes those who rent but not property owners.

The rent for households living in rented accommodation is included in both the CPI and the HICP.

The situation below is an incredibly large flaw to say the least when you consider how much of people’s expenditure is on housing.

The HICP does not include any costs for living in one’s own home.

I recall the chief economist of the ECB saying that people spend up to a third of their income on this which means it is a very big issue. It gets ignored because as the military say the best way to hide something is to put it in plain sight and this has been going on since 1996 in the case of the Netherlands.

In February the ECB wrote an economic bulletin on the subject.

However, it also acknowledged that the inclusion of costs related to owner-occupied housing (OOH) would better represent inflation relevant for households.

Because this covers a lot of people.

The share of owner-occupiers ranges from 50% to 90%, with rates around or above 70% in 16 out of the 19 euro area countries.

So they are wrong to ignore them and somehow or other those responsible for inflation measurement have done nothing about it for nearly 30 years.

There is an irony here in that the CPI measure does claim to include housing costs fully nit makes a hash of it.

An imputed rent is calculated in the CPI for households who live in an own home, and its development contributes to the CPI.

Not one person has even paid an imputed rent, with the clue being in the word imputed.


There are two really big issues here. The first is something I have been pressing for more than a decade which is that measuring housing costs accurately is really important. I understand that when inflation was low some might have thought, “so what?” but even then it mattered because mostly unmeasured housing inflation was hitting first-time buyers and those trading up. As we have seen house prices soar this has badly affected people as well as distorting official statistics.

The CPI measure is lower than the headline because of quite a qwerk. You see imputed rents were introduced as a way of reducing recorded inflation. You do not need to take my word for it as here is the ECB.

Rent price developments in the euro area demonstrate remarkably stable inflation rates, with an average of 1.6% over the longer-term (20 years)[9], partly reflecting indexation to past inflation trends and stickiness of long-term rental contracts.

Okay so what have house prices done in the same period.

By contrast, changes in house prices tend to be more closely linked to business cycles and sometimes also financial market dynamics, with considerable variation around their longer-term average of 3.3%[10]

So roughly double and there in a nutshell is both the reason for my argument that house prices should be in the inflation measure and also why I face so much official resistance.

So here is the reality. The Euro area measure excluded owner-occupied housing costs to help keep recorded inflation lower. The original Dutch method tried that via using fantasy housing costs ( assuming you pay rent even if you do not). Those were the 2 strategies. In any inflation surge the Dutch effort was always likely to win because rents remain low and stable.

Oh and in case you do not believe me that the main effort is to misrecord inflation. They are already onto energy costs.

The first preliminary calculations have now been carried out. This shows that with a new method the inflation figure would have been significantly lower in recent months than what Statistics Netherlands has now published.

Of course they do….



11 thoughts on “How does the Netherlands have an inflation rate of 17.1%?

  1. Hello Shaun,

    ref” that measuring housing costs accurately is really important.”

    Noe when you’re trying to hide asset inflation because thats all you’ve got to keep the economy going .

    But I would have been measuring it too , like you, but that would have meant doing something about it and the easy option is always the “best” .


  2. Answer to question in title of article:because they measure it more accurately than we do? I have always maintained our rate is in the ball park of 15-20% and next year is likely to be much higher due to the cost of gas and electricity and food shortages.Hence my constant attacks at the Bank of England for not raising rates.

    • IR will never reflect the inflation rate , it will be “looked through”

      20-25% is what I see , IR to stop that ?

      well as I have always posited its wage inflation they target and thats not going up much at all

      so dont expect IR over 8% in the next 12 months *


      * I’m pretty useless at financial advice 😉

  3. Hi Shaun
    As many of us have said for a long
    time if any major country released
    accurate statistics it would show up
    the international facade for what it is.

  4. I know that there is a big fan club on here for Bailey, so I did a little searching for details of his replacement at the FCA – Nikhil Rathi – yes another ethnic hire, nothing wrong with that of course if they are the best person for the job, so what was his degree in ? How about PPE from Oxford no less!.Some on here might remember me pointing out the BBC Economics Correspondent Kamal Ahmed had a degree in Political Studies, well qualified to report and comment on the complexities of modern economics and financial markets then?.

    Now doesn’t that reassure you in times like these? But wait there’s more – another ethnic economic expert – our new chancellor – Kwasi Kwarteng – degree in Classics and History from Cambridge then did a PhD in Economic History specialising in the Coinage Crisis of 1695-7, now now calm dow at the back, he is apparently fluent in Latin and writes Latin verse.

    If only the Bank of England had been warned about the risks associated with LDI contracts? Oh wait……….. Anil Kashyap a member of the bank’s Financial Policy Committee in a speech warned against the risk of contagion and the multiplier effects of LDI contracts in Novemebr 2020.Now this a true economist and academic who knows his stuff:

    Anil Kashyap’s research focuses on financial intermediation and regulation, the Japanese economy, price setting, and monetary policy. His research has won him numerous awards, including a Sloan Research Fellowship, the Nikkei Prize for Excellent Books in Economic Sciences, and a Senior Houblon-Norman Fellowship from the Bank of England (twice). As of October 1, 2016 he is an external member of the Bank of England’s Financial Policy Committee.

    Prior to joining the Chicago Booth faculty in 1991, Kashyap spent three years as an economist for the Board of Governors for the Federal Reserve System. He currently works as a consultant for the Federal Reserve Bank of Chicago and as a research associate for the National Bureau of Economic Research (NBER). He is a fellow at the Centre for Economic Policy Research, is a member of the Squam Lake Group and serves on the International Monetary Fund’s Advisory Group on the development of a macro-prudential policy framework. This experience, along with his research and other consulting and advising to central banks and finance ministries around the world, has helped him create his two unique elective courses, “Understanding Central Banks” and “The Analytics of Financial Crises.”

    Kashyap is a member of both the American Economic Association (AEA) and American Finance Association, and is on the faculty oversight Board of the Chicago Booth’s Initiative on Global Markets and a co-founder of the US Monetary Policy Forum.

    He regularly speaks on the financial crisis, Japan, the global economy, and the direction of economic policy.

    Obviously this only qualifies him to be an EXTERNAL member of the Financial Policy Committee and to have his advice completley ignored!

    After receiving many pitches from investment banks trying to sell LDI contracts for the pension fund of Next, its CEO Lord Wolfson wrote to the Bank of England in 2017 warning them of the dangers of LDI contracts, and in its Novemebr 2018 Financial Stability report it acknowledged the risk from these contracts and said it wasn’t clear if the pensions and insurances sectors were paying sufficient attention to the risks!!!. The bank then commited to work with the FCA anoung others to monitor the things that could lead to a crisis. Errrr…so how did it happen then?

    Perhaps in years to come another ethnic Cambridge gaduate will do his Phd in Modern History on the Sterling Crisis 2022 onwards??? and then go on to be president of the ECB ten years or so after us re-joing the EU and adopting the Euro?

    • Hello Kevin
      You seem to posit that someone with an economics degree is more likely to make a good jdecision. If you have followed Shaun’s critique of, for instance, the MPC you will see that he does not seem share your conviction despite his degree.

  5. Great blog as usual, Shaun.
    There is much to admire in Dutch inflation measures. The constant-tax Dutch CPI became the model for the constant-tax HICP and hence the constant-tax UK CPI. I can testify that it is a better methodology than the Canadian CPI excluding changes in indirect taxes, which can lead to a perverse increase in a CPI series excluding changes in indirect taxes in the case where an indirect tax is imposed and rescinded within the same calendar year. (This is not as far-fetched as you might think. It did happen with the Ontario government’s eco-fees, introduced on July 1, 2010 and cancelled after just three weeks.)
    The Netherlands is the only country in Europe that uses the Rothwell formula, involving monthly expenditure weights, for seasonal products, and the only country in the world that includes seasonal clothing items in its definition of seasonal products. This alone should make Dutch inflation measures the envy of the world.
    I agree that the imputed rent calculation of owner-occupied housing in the Dutch CPI is dysfunctional. The Netherlands is a lot like what the UK has become since the CPIH was introduced: a country that would rather hide its recurrent housing price booms than properly measure them. However, the Dutch do, like other members of the EEA, calculate an experimental quarterly price index for OOH based on the net acquisitions approach, which shows a 10.5% annual increase for 2022Q2, the most recent quarter published. This is a lot more than the ONS is doing now, whose comparable series, monthly not quarterly, ends at December 2020.
    I’m surprised that anyone would find the annual inflation rate of 14.5% for September, up from 12.0% in August, hard to fathom. This kind of increase is difficult to digest when there is an important exit effect. As a rule-of-thumb, the September 2020 annual inflation rate would be approximately the August 2020 annual inflation rate plus the September 2022 monthly inflation rate (2.4%) less than September 2021 monthly inflation rate (0.1%), which would give a September 2022 inflation rate of 14.3%. It is close to this, and the 0.1% exit effect is negligible. The September 2022 annual inflation rate comes out higher than the rule-of-thumb because there was such a high inflation rate for the 11 months between September 2021 and August 2022, 11.9%. If there had been no inflation between September 2021 and August 2022, the rule-of-thumb would have applied exactly, the annual inflation rate rising from 0.1% in August 2022 to 2.4% in September 2022, but then the Netherlands wouldn’t have a big inflation problem.

    • Hi Andrew and thank you

      One of the ironies of these times is that by making an effort to measure inflation properly a country ends up looking worse than the others. Whereas they should get some praise for trying to tell the truth.

      I am afraid that my country is not doing that well. We have discussed many times the new measure called HCI. But it would seem the ONS are using every possible delaying tactic. From Statsusernet.

      “We remain committed to increasing the frequency of the Household Costs Indices (HCIs) as we set out in our statement in June, moving to quarterly in 2023. While moving to quarterly is our immediate focus we are open to discussions with users on frequency in the future. This development work is not straightforward and we continue to work on our systems and processes to make this transition to quarterly. We are currently reviewing our workplan before publishing further detail but at the moment don’t expect to be in a position to publish estimates until middle-2023 at the earliest.”

  6. Just a quicke off topic.

    £ V $ falling after Fitch downgraded UK and bond yields rising.

    Lizz Truss says she is going for growth growth growth, I don’t know where it is going to come from however all I see is despair despair despair with a triple whammy of inflation, high energy costs, increasing mortgage costs.

    In fact even food banks are running short of food I know one poster on here worked in a food bank maybe he could update us?

    I was prepared to give Liz Truss a chance but her attempt to reduce top rate of tax when the vast amount of the population working their butts off and still struggling didn’t go down well and also knocked the markets badly.

    The IFS said:

    “The Institute for Fiscal Studies (IFS) has calculated that for every £1 given to workers by cutting headline tax rates, £2 was being taken away through a freeze on the level at which people begin paying tax on their earnings.”

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