Components of inflation in January 2002

Inflation fell to 4.0 percent in January 2002, from 4.4 percent in December. The fall is the result of strong but opposing effects on price. Inflation is measured as the difference of the average level of prices in a period compared with the same period twelve months previously.

VAT and ecotax effect petering out

The Dutch government put up the rate of VAT in January 2001. According to Statistics Netherlands the direct effect of this increase was 0.5 of a percent point. Also in January 2001 the ecotax on gas and electricity was increased substantially, contributing just over 0.4 of a percent point to inflation. The effects of these increases no longer contribute to inflation from the beginning of 2002. However, it is possible that the VAT increase was incorporated in the price increases later than January. This delayed implementation in February 2001 and later will show up in inflation in January 2002.

BTW, ecotax and inflation

The structure of inflation can further be described by article groups where price changes take place. Changes in the prices of a given item may be caused by various elements: changes in prices of raw materials, wage costs and other costs, changes in tax rates, failed crops, changes in competitive position and consequences of the introduction of the euro. As these effects cannot be disentangled, it is impossible to calculate precisely what the effect of the introduction of the euro has been.

The structure of inflation

Disregarding the effects of VAT and ecotax, inflation rose by 0.5 percent. This increase in inflation consists of five main elements:

• Price increases for fresh vegetables explain 0.2 of a percent point.
• The price of clothes and shoes explain another 0.1 of a percent point. This month lower prices were observed for clothes and shoes because of the winter sales. However, the decrease was smaller than last year. It is as yet difficult to say whether this means that prices will remain higher in the future.
• The price development of motor fuels also contributes 0.1 of a percent point to the increase in inflation.
• The article group recreation and culture is responsible for 0.1 of a percent point of inflation. In this group flowers and plants in particular have gone up in price.
• Price adjustments in hotels, bars and restaurants contribute 0.1 of a percent point to the increase in inflation.

Price developments for all other article groups do not lead to an increase of inflation by more than 0.05 of a percent point and are therefore rounded to 0.0.

Course of inflation