Knot: high inflation for at least two years, ECB interest rate hike at the end of 2022 | Financial

The head of the Dutch central bank, who is also one of the policymakers at the ECB, made that prediction in the TV program Buitenhof. Knot called the high inflation of 5.7% ‘extremely worrisome’, especially for the purchasing power of the Dutch citizen with the tight stock exchange, who spends a large part of his budget on energy and food.

Inflation has risen to its highest level in decades in recent months. The fact that life has become considerably more expensive everywhere is largely due to the sharp rise in energy prices, but many products have also gone up in price in the supermarket, for example.

Wage price spiral

The DNB president points out that the causes of the high inflation mainly lie outside the Netherlands. He does not yet identify a so-called wage-price spiral, whereby companies increase wages for employees even more sharply, thereby driving inflation even more. That is why Knot assumes that the high price increases will come to an end at some point.

Knot expects an interest rate hike of a quarter of a percent, which will probably be followed by another such step in the spring of 2023. From then on, the bank will continue to raise interest rates as long as the inflation outlook warrants it, he said. At the moment, however, the bond-buying program will first have to be phased out before ‘there can be put on the brakes’.

wealth tax

Knot argues in favor of a solution for the €4 billion gap that has arisen because the judge has drawn a line by looking for capital gains tax ‘in the sphere of wealth tax’. According to him, the Netherlands levies relatively little tax on wealth and a lot on labour. “You could say that the Netherlands is more of a rentier economy than other countries, which is actually paid for by the ‘hard-working Dutchman’ with higher taxes on income from labor,” said the bank president.

Knot said he was in favor of not sparing the value of the home when setting up a new form of wealth tax. During the pandemic, the entire Dutch housing stock has become worth 300 billion more during the corona period. Why should someone who has earned more income from work pay up to 50% tax on it, while someone who has earned the same amount from the increase in value of his house pays 0.55% on it?”

‘Lack of cabinet discipline’

In Buitenhof, Knot also discussed the cabinet plans for the coming years. According to him, they are ambitious in areas where the necessary ambition previously lacked. Knot does, however, share the opinion of many economists that the government does rely a lot on large investment plans in its approach, while Knot believes that the policy could be more efficient if more is done with, for example, tax incentives and the pricing of environmental pollution. Like other experts, Knot also believes that the government should be careful when increasing the national debt. According to him, the fourth Rutte cabinet is opting too much for the solution of increasing government spending to solve problems such as excessive nitrogen emissions. According to him, this does not produce the most effective results, because according to him pricing is always better.

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