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Inflation at Belgian factory gate: 21 percent

Belgian producer prices rose 20.7 percent year-on-year in June. That is much more than in other countries. What does that mean for inflation?

The sales prices of industrial companies are rising twice as fast in Belgium as in the eurozone. That reports the Eurostat statistics office on Tuesday. In Belgium, producer prices of goods for the domestic market rose by 20.7 percent and in the eurozone ‘only’ by 10.2 percent. Ireland (+42.7%) is the only country in the eurozone where the rise in producer prices was even greater than in Belgium.

The price increase of energy products is greatest in both Belgium and the euro zone. Refined oil products such as petrol and diesel became much more expensive, because the price of crude oil has risen sharply. The prices of semi-finished products have also risen sharply.

The price increase in Belgium by more than 20 percent is probably related to the structure of our industry. Our country has a relatively important petrochemical industry, which consumes a lot of energy. It passes on the higher energy prices in its sales prices. Moreover, Belgium produces a relatively large number of semi-finished products.

A price increase of 20 percent. You would be concerned about rising inflation even with smaller increases. Is that right? Not quite. Because although the inflation at the factory gate is exceptionally high, its impact on ordinary inflation (the price increases of consumer goods) is relatively limited.

Take Ireland. There, producer prices have risen by more than 40 percent, while inflation is only slightly more than 2 percent. One of the reasons is that producers do not always fully pass on the cost increases, but sacrifice their profit margins. However, there are indications that an important part is calculated. In addition, services outweigh industrial goods in the consumer price index, mitigating the impact.

Something wrong with the inflation figures?



The price hikes at the factory gates show that the world is still struggling with bottlenecks in supply chains.

Is there something wrong with the way we measure inflation? That doesn’t seem to be the case. The reason that services weigh more heavily in the consumer price index is because consumers spend more on services than on goods.

What the price hikes at the factory gates do show is that the world is still struggling with rising prices of raw materials and parts and bottlenecks in supply chains. The recovery prompted by the corona easing is leading to a high demand for products. The supply side of the economy can’t keep up with that demand, causing prices to rise.

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