European inflation has fallen, but not by as much as analysts had hoped. “Therefore, central banks must be active and demonstrate that they are ready to face something,” says economist Arnaud Bot.
However, a decline does not mean that inflation is also low, he stresses. “Inflation is carried over into food and other products, and that’s all in line with expectations,” Bot says. “We have a central bank that has paved the way for raising interest rates. Our interest rate is around 2%, in the US it is around 5%, and because Europe is lagging behind the US, interest rates will rise again.
So the economy is slowing down, and according to Boot, that is also the intention. Everything is priced and at the same time governments need to make sure they don’t spend it all on the money. They will bite their tails, especially because the economy is fully occupied. And so you will see that we have to wait for the economy to slow down, which is not really news.
Although inflation in Europe will trend towards the level of the United States, Boot does not expect inflation to become that high. “The expectations are that it will increase less,” he continues. “The United States, of course, has always been a land of extremism, and that also applies here. So what I just said is not news, because it was completely in line with expectations.
The preamble continues: “Inflation not only does not disappear, it continues to affect people’s minds. Therefore, central banks must be active and demonstrate their willingness to oppose something. Inflation is very annoying to the economy.
But, Bot says, the Dutch economy can take a beating. “Now it’s been crazy two years in a row, by more than four percentage points,” he asserts. “We have the lowest unemployment rate in the history of our country, so we just need to slow the economy down.”
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