President Klaas Knot of De Nederlandsche Bank (DNB) is concerned about the consequences of support for households due to high inflation. He shares the International Monetary Fund’s concerns that such measures could actually boost inflation. “I don’t want to get around that,” he told the ANP after the IMF’s annual meeting.

Like the IMF, the head of the central bank has been emphasizing for some time that support for people struggling to make a living is now good. But if a package doesn’t meet certain conditions, it can lead to even more inflation. This is how a government works against central banks because they are trying to curb inflation.

According to Knot, it appeared at the IMF meeting that other countries were also facing this dilemma. “I have found that almost all countries are finding it difficult to comply with the IMF’s recommendation in this regard. It is very clear: the support must be temporary, targeted and covered in the budget. But the finance ministers seem to be particularly ‘specific’. for. hard to find.”

‘Very wise’

The price cap that the Netherlands has opted for is not targeted but applies to everyone. It is also not yet clear how the costs will be covered. “Every household benefits from it, even people with higher incomes who don’t actually need support,” says Knot. He also doubts that the cap will be a temporary measure if it turns out next year that purchasing power is still under severe pressure.

According to the DNB President, it would be “very sensible” if the cabinet dealt with how it intends to finance the many billions that the temporary price cap will cost next year as soon as possible.

One way to cover the cost is to levy an additional tax on households or businesses that receive the compensation but do not need it. Knot also tells the ANP what it sees in this solution.

The government has not yet decided on the financing. According to Minister Kaag (Finance), there is still too much uncertainty to seek “informed and reasonable” cover. The government has tried to work as specifically as possible with the aid package, and the support should also be limited in time.