The Belgian economy, particularly sensitive to inflation - Economic Policy

The Belgian economy, particularly sensitive to inflation – Economic Policy

Between February 2021 and February 2022, according to the harmonized index allowing a comparison between countries, prices increased by 4.2% in France, 5.5% in Germany, 7.3% in the Netherlands and 9 5% in Belgium, notes the economist Eric Dor (IESEG).

“Belgian inflation is higher than that of all the other countries in the euro zone, apart from Estonia and Lithuania”, he specifies. Thus, the increase in the price of electricity is 4.9% in France, and 72.8% in Belgium; the price of butter increased by 1.3% in France, and by 15% in Belgium.

“Belgian inflation is higher than that of all the other countries in the euro zone, apart from Estonia and Lithuania”, he specifies. Thus, the increase in the price of electricity is 4.9% in France, and 72.8% in Belgium; the price of butter increased by 1.3% in France, and by 15% in Belgium. There is no single explanation for these differences. Already in the past, the National Bank of Belgium had been challenged by the difference in price levels between Belgium and neighboring countries. We looked for the reasons: wage indexation, the need to have specific labels, imperfect competition in certain sectors, and so on. But in addition to the already high price level, the rise is also faster here. One of the explanations still lies in the rise in energy prices. “In energy, we are paying in Belgium for management that is not a model, while the budgetary effort made in France to alleviate the impact on households of the rise in gas and electricity prices is colossal”, emphasizes Eric Dor. But the automatic indexation of wages, which passes on the rise in prices more quickly, also plays a role. And then, as Larry Fink, boss of BlackRock, the world’s largest asset manager, points out, “the Russian invasion of Ukraine ended the globalization that we have known for the past three decades”. However, Belgium is a small, very open economy which suffers more particularly when the world closes down. Large economies such as France or Germany can more easily find substitute products for imported products at home. This inflation obviously has an impact on rates. The Belgian State’s 10-year bond rose back above 1%. Mortgage rates followed: for a fixed rate over 20 years, it would be necessary, according to Guide-épargne.be, to pay 2.1% on average while the rate was only 1.5% at the end of last year. .But it is the saver who is the most affected: “The regulated savings rate in Belgium has become grotesque. With 0.11% on the savings account and inflation of 9.5%, a saver loses almost 10 % of the purchasing power of his savings in one year, underlines Eric Dor. Despite this, the outstandings remain significant because people who do not wish to take risk remain glued to the savings account (whose outstandings now exceed 300 billion)” . This flow in passbooks is a problem for banks. After Axa, ING, Argenta, BNPP Fortis in turn will limit deposits on the passbook (250,000 euros maximum) from April because banks that deposit cash with the National Bank must pay a rate of 0.5 %. “Part of these deposits is exempt but any new deposit is found at least temporarily parked on the current account of the BNB. And the banks must pay a tax of 0.5% on this liquidities”, explains Eric Dor.

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