ING: Dutch consumers more affected by inflation than expected

Dutch consumers seem to have been more shocked by the recent price increases than experts expected. This is what economists at ING suspect in response to the economic figures published this week by Statistics Netherlands (CBS). Although the economy grew significantly in the second quarter, consumer spending unexpectedly fell.

Initially, experts had considered domestic consumption to be one of the most important growth drivers. “Purchasing power is increasing significantly, especially due to tariff increases, which have been well above the inflation rate for some time. Consumer confidence was also higher in the second quarter than in the first.”

According to ING, the fact that the Dutch did not increase their spending massively appears to be due, among other things, to consumers' increased inflation expectations. The bank's experts refer to studies by the EU Commission. These indicate that consumers in Europe are “more pessimistic than can initially be explained by the development of hard economic developments in income, unemployment, interest rates and actual inflation.”

In other words, people sometimes have to expect higher price increases than they have experienced so far. “This may also apply to Dutch consumers, because consumer confidence in the Netherlands is still at a low level.”

According to ING, consumers can sense high inflation when conspicuous or frequently purchased products become more expensive than average. “Two developments may have played a role in our country in the second quarter, even if that remains speculation,” say the experts. They are referring to the increased tobacco tax, which made a pack of cigarettes more expensive. In addition, many people knew that their rent would rise significantly from July.

The average rent increase is 5.5 percent, which is the largest increase in over 30 years. “Many consumers were informed of this by their landlord in the second quarter, were possibly shocked and have therefore become a little more cautious with their spending.”

In addition, economists believe that bad weather may have played a role. They are not yet worried because these are likely temporary effects. They do not believe that inflation will rise much further and expect that consumption will rise again at some point.

Overall, the Dutch economy grew by 1.0% compared to the previous quarter, mainly due to growth in the trade balance and, to a lesser extent, increased government consumption. At the international level, Dutch industry is benefiting from lower energy prices and a weaker reduction in excess inventories, which is having a positive impact on exports, according to ING.