Kingdom of the Netherlands–the Netherlands: Selected Issues

This Selected Issues paper explores the nature of the recent acceleration of inflation in the Netherlands, taking into consideration different perspectives. The paper also presents different measures of inflation and the methodological discrepancies among the indicators considered. It also presents an empirical assessment on the main drivers of inflation through the Phillips-Curve estimation. The paper also analyses the particularities of the Dutch energy mix compared to other EA peers, and the pass-through from wholesale to retail gas and electricity prices. In addition, as increasing inflation has raised concerns for a potential wage-price spiral, and presents empirical evidence on how the distribution of the total remuneration of productive factors—capital (profits) and labor (wages)—worked in the past. As risks of high inflation persistence increase, the effects of the loss of purchasing power for households will be also heterogeneous among different income quintiles, with unclear effects on demand and economic activity overall. The capacity of the Dutch economy to adapt to the new energy environment and to improve productivity is key to preserving employment, growth, and profits.