Drivers of Dutch inflation during the pandemic era

We analyze the drivers of inflation in the Netherlands, using a model developed by Bernanke and Blanchard (2023). We find that shocks to energy and food prices were the main contributors to Dutch inflation in 2021 and 2022, while labor market tightness and supply shortages played a less pronounced role. While the effects of commodity price shocks on inflation are positive, we can expect them to be rather short-lived due to weak second-round effects and firmly anchored inflation expectations. Moreover, we find that, while the pass-through from price growth to wage growth is strong, the pass-through going in the other direction is incomplete, which limits the risks of a wage-price spiral.