Exclusive: DNB Economist: Low Likelihood of Wage-Price Spiral in the Netherlands

14 May 2024

By Isabel Teles – FRANKFURT (Econostream) – The pass-through of wage growth to inflation in the Netherlands is muted, limiting the likelihood of a wage-price spiral, Gerbert Hebbink, Principal Economist at De Nederlandsche Bank, told Econostream in a recent interview.

‘The interactions between prices and wages mutually reinforce each other, but not in an explosive or spiralling manner’, he said. ‘And that is the main reason why we say, based on past experience, we would not expect this relationship to be so strong that there is a spiral in the future either.’

One of the reasons for the low likelihood of a wage-price spiral in the Netherlands was the incomplete pass-through from wage growth to price growth, according to a study co-authored by Hebbink and published on the website of DNB.

The pass-through from wages to prices typically worked through the impact of inflation expectations, which were ‘at this moment very well anchored to the ECB target’, he said.

‘If, only if, these long-term expectations deviated from the current levels, that would have an impact on wage developments and then, the interaction between wages and prices would be stronger than before’, he said. ‘But I wouldn't say that immediately leads to a wage-price spiral.’

Another finding of the study was that, although statistically significant, the impact of the labour market on wage growth was relatively weak.

For this reason, other than labour market tightness and wage growth, the inflation assessment must consider other drivers, such as inflation expectations and energy and supply shocks, Hebbink said.

In the Netherlands, wage increases seen in the latest collective agreements were flattening out, he said, ‘They are still high, but now the peak seems to be behind us.’

There were indications that Dutch wage growth would continue to moderate, he said. Although some negotiations were still ongoing and workers would seek to recover real income losses, ‘some of the agreements have already compensated for the inflation shocks, so they might have lower increases in the future’, he said.

Recent data from the Indeed Wage Tracker, often referenced by the European Central Bank, showed that in the Netherlands, annual wage growth in jobs advertised online fell from 6% in the three months up to March to 5.8% in the three months up to April. For the euro area, the indicator dropped from 3.7% in March to 3.4% in April.