THE HAGUE, March 13 (Xinhua) -- Rising energy prices and the Russia-Ukraine conflict could exacerbate persistent inflation and drag down the average purchasing power of the Dutch to a 40-year low, bringing uncertainties to the economy still mired in lingering pains from the COVID-19 pandemic.
HIGHER PRICES
Inflation in the Netherlands this year is expected to reach 5.2 percent, nearly doubling the 2.7-percent record in 2021, projected the Netherlands Bureau for Economic Policy Analysis (CPB), an independent research agency under the Ministry of Economic Affairs and Climate Policy.
Higher inflation, reaching 6.2 percent in February, means that Dutch consumers might see their purchasing power this year drop by 2.7 percent, a 40-year low, or even by 3.4 percent, said the CPB.
Partly due to the economic shocks and global supply chain disruptions caused by the COVID-19 pandemic, inflation in the Netherlands has picked up over the past months and reached its highest rate in almost 40 years in January at 6.4 percent. The escalation of the Russian-Ukraine conflict has compounded the inflationary pressures.
Energy prices have hit record levels amid the Russian-Ukraine conflict as traders consider the risks of gas supply disruptions to EU countries, including the Netherlands. About 25 percent of the EU's energy consumption comes from natural gas, with the Russian supply accounting for up to 40 percent.
"The most important economic consequence for the Netherlands, at the moment, is an even higher energy price," said the CPB, expressing concerns about the impact of high energy prices on low-income households.
Besides, Ukraine and Russia are leading exporters of agricultural commodities. According to industry data, Ukraine has long been the largest exporter of sunflower oil in the world, while Russia ranked the second in sunflower oil export and the first in wheat.
The conflict has pushed up the prices of these commodities, which, according to a report by Dutch banking company Rabobank, "is already being felt in the Dutch food chain."
According to the CBP, the year-on-year increase of food prices went up from 4.3 percent in January to 4.9 percent in February. A similar upward trend was also shown over the past few days in prices of raw materials exported by Russia, such as nickel, aluminium, and platinum.
AID PACKAGE
In the face of high energy prices, the Dutch government announced the allocation of 2.8 billion euros (3.06 billion U.S. dollars) on Friday to help households recover some of the weaker purchasing power.
According to the support package, which will last for at least half a year, people with low income are promised to receive a one-off payment of 800 euros for their energy bill, more than the 200 euros previously expected.
The package also includes plans to reduce the excise duties on fuel from April 1 and the VAT rate on energy as of July 1. The excise duty per liter of unleaded petrol will decrease by 17 cents and for diesel by 11 cents, while the VAT rate on gas and electricity is expected to drop to 9 percent from 21 percent currently.
Excise duties and VAT on energy in the Netherlands are among the highest in the EU, accounting for about half of the petrol price and about 40 percent of the diesel price.
While the EU plans to reduce its dependency on Russian fossil fuels, Dutch Prime Minister Mark Rutte stressed that "at the moment that the dependency is, to a certain extent, still there." Rutte has also rejected calls for a ban on imports of Russian oil and gas as part of strict sanctions imposed on Russia.
The CPB has projected the Dutch economy to grow by 3.6 percent in 2022 and 1.7 percent in 2023, but experts say these projections may be revised downwards soon, citing the uncertainties brought by the Russia-Ukraine conflict and the expected double-edged impact of EU sanctions on Russia, since the EU economy has a large exposure to key Russian and Ukrainian import goods. ■
Economic Watch: Dutch economy feels pinch amid soaring inflation - Xinhua
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