Inflation falls in the Netherlands, but only for now
The desk assesses that while Netherlands' inflation has eased to 2.8% year-on-year in August, underlying inflation trends suggest this may be temporary. Specifically, the acceleration in energy prices and a broader global inflation narrative indicate potential upward pressure ahead, aligning with broader expectations for fluctuating inflation dynamics. Per the full note source, the significant drop in services and food inflation could mask stronger energy-driven inflationary pressures, complicating policy outlooks. With no immediate calendar catalysts, market sentiment may hinge on these evolving inflation dynamics.
What the desk is arguing
The desk posits that the recent decline in Netherlands' inflation, reported at 2.8% year-on-year, might not signal a sustained trend. This view is supported by rising energy prices, which remain in double digits, threatening to trigger a re-acceleration in overall inflation in the coming months, as noted in the source commentary.
Despite the easing in services inflation, which slipped from 4.0% to 3.4%, and food prices turning negative, energy inflation's upward trajectory highlights potential risks to these positive trends. The recent decline in wage growth may also compound these inflationary pressures, as services become more cost-constrained.
Where it sits in our coverage
Our current consensus target for EUR/USD is 1.075, with a range of 1.04 to 1.12. Leading firms include: - jpmorgan: 1.10 for Mar26 - bofa: 1.04 for Mar26
This perspective is somewhat neutral against the cross-firm consensus, as jpmorgan aligns with our view, pointing towards a relatively stable outlook amidst inflation concerns, while bofa takes a contrary stance with a lower target. The desk's projection veers towards the upper bound, suggesting cautious optimism on the euro as inflation narratives unfold.
How other firms see it
Firms like jpmorgan and citi express similar views regarding the potential transience of current inflation decreases, thus indicating a general alignment on inflationary risks. Conversely, bofa and goldman maintain more pessimistic stances, suggesting a need for vigilance regarding economic stability.
In conjunction with these inflation discussions, traders should monitor the EUR/USD trajectory closely, especially as it interacts with ECB policy signals and global energy price dynamics.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Netherlands' inflation dropped to 2.8% yoy, signaling potential temporary relief.
- 02Double-digit energy inflation may re-accelerate overall inflation in upcoming months.
- 03Services inflation is declining, but wage growth trends could impact future inflation dynamics.
- 04Inflation easing narratives must be understood in the context of rising energy prices.
Market implications
Traders should watch for any significant movement in energy prices as that could heavily influence overall inflation and likely impact the EUR/USD pair. Current energy trends could determine market sentiment ahead of potential ECB policy adjustments.
Risks to this view
Any reversal in inflation trends, particularly if energy prices stabilize or decline significantly, could negate the current outlook. Additionally, stronger-than-expected wage growth might bolster consumer spending, leading to inflation persistence contrary to current expectations.
Older quick take Quick take Published 09:21 The Netherlands Inflation falls in the Netherlands, but only for now Headline inflation in the Netherlands fell to 2.8% year-on-year in August. Services inflation, in particular, eased, and food inflation even turned negative. Energy and fuel inflation, however, accelerated to double digits.
Together with world food prices, this foreshadows a re-acceleration of overall inflation in the months to come Dutch headline inflation slowed in August but double-digit energy inflation signals renewed price pressure ahead Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Marcel Klok Senior Economist, Netherlands While services inflation contributed 1.6% to the headline harmonised HICP inflation rate, and remains the main source of inflation in the Netherlands, it decelerated the most among the broad inflation aggregates that were released today, falling from 4.0% year-on-year in July to 3.4% in August. Details are not yet available, but earlier indications suggest that this deceleration may be due to ICT services, dental services, recreation, insurance and financial services. July figures also showed that the housing market provides a lower (but still considerable) contribution to inflation than in the first half of the year, with rental inflation (both actual and imputed rents) falling below 4.5%.
Since these figures are only updated once a year, however, they cannot explain the drop in August. The trend of slowly falling wage growth might help explain why inflation is trending down for a broad range of services. Food, beverage, alcohol, and tobacco inflation also contributed to the slowdown, exerting downward pressure on the headline HICP rate.
Annual inflation in this category fell from 0.0% in July to -0.5% in August. Based on recent trends, food items such as oils and fats, juices and other non-alcoholic beverages, vegetables, fish and seafood, dairy products, and eggs were likely cheaper than a year earlier. This reflects a nine-month period of year-on-year deflation in food producer prices.
While this may initially suggest that consumer food prices could continue to fall for at least another month, more recent developments point in the opposite direction. Monthly price trends, tensions in the Black Sea region, extreme weather over recent months, and rising global prices for key agricultural commodities such as oils, grains, corn, and meat all suggest that domestic food inflation is likely to reaccelerate soon. El Niño also raises concerns about higher cocoa and sugar prices, posing an additional inflation risk, particularly for 2027.
Also, the decline in both headline inflation and core inflation, which fell from 3.0% year-on-year in July to 2.7% in August, does not appear to signal a sustained downward trend in Dutch inflation over the coming months. Inflation in the energy and fuels category accelerated from 9.7% in July to 11.8% in August, driven by elevated crude oil, refined fuel and natural gas prices. These higher energy costs also feed through to other parts of the consumption basket, including passenger transport and, potentially, food prices later on.
Moreover, because many households are on fixed-price energy contracts, the pass-through of higher wholesale energy prices to consumer bills tends to be gradual. As existing contracts expire, energy costs are therefore likely to add further upward pressure to inflation in the months ahead. Combined with an unresolved situation in both the Gulf region and Black Sea, this suggests that a return to 2% inflation is still some way off.
While uncertainty remains high, our base case assumes that the war in the Gulf will continue and that we will have to wait until after the US mid-term elections for some relief for energy and fuel. As a result, year-on-year inflation rates could approach, or even exceed, 3.5% towards the end of this year or in early 2027. Inflation Food prices Energy prices Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take
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