In a broadcast of BNR Nieuwsradio's economists' panel, Casper de Vries, Professor of Monetary Economics at Erasmus School of Economics, discusses central bank interest rate hikes and the effect of wage increases on the economy.
The Fed and the Bank of England have raised interest rates by 50 basis points in an attempt to curb inflation. According to these banks, the end of these interest rate hikes is not yet in sight either. De Vries says it is important to look at the causes of inflation. For America, these are very different from those for Europe. He points out that Europe has a large energy shortage, a form of supply inflation. There is little the central bank can do about that.
In America, on the other hand, inflation was created by cheques issued by US governments to citizens. The Dutch government's policy to deal with the energy crisis does need to be adjusted, according to the professor: de facto cheques are also written, which could be a danger to inflation. However, the Netherlands is being tackled with the velvet glove here, as the Netherlands still has a low national debt.
Wage raises
According to DNB, companies can bear higher wages for employees just fine, by allocating part of their profits for this purpose. De Vries notes that DNB's sample is based on observations where there is little high inflation. 'The question is how well you can rely on that.' In the short term, it is not possible to steer the economy, although some expect it to.
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You can listen to BNR News Radio's broadcast, 7 November 2022, here.