Deceleration in services, food, and industrial goods

Services prices in particular contributed to the deceleration of the headline HICP inflation rate in the Netherlands. This occurred despite an increase in the VAT rate on accommodation from 9% to 21%. Still, services remain the main reason inflation is above normal rates. Services inflation decreased from 4.3% YoY in December to a still elevated 3.6% in January. It is the only main category still above 2% inflation. This is largely the result of strains in both the labour and housing markets, which continue to drive significant increases in wage costs and rents.Food, beverages, alcohol, and tobacco inflation came in exactly at 2.0% YoY in January, down from 3.1% in December. Non‑energy industrial goods inflation fell from an already modest 0.8% to a low 0.6% in December.

Fuel tax causes acceleration

The only main aggregated category that accelerated was energy, including fuel. These goods accelerated from a -0.4% YoY price decline in December to a 0.4% YoY price increase in January. This resulted from an increase in the excise duty on fuel at the start of the year. Parliament submitted amendments in December to close some gaps in the government budget for 2026. Recall that fuel duty was temporarily lowered during the energy crisis, and the usual indexation to the overall price level was largely foregone in the years since. This means further increases in fuel duty are expected in the coming years.Initially, the remainder of the normalisation and indexation was scheduled for 2027. This is now uncertain, however, as the coalition agreement of the incoming minority government proposes restricting the 2027 rise to petrol and LPG, while postponing the diesel increase until 2028. As the yet‑to‑be‑installed minority government will need to secure support from opposition parties, this outcome is not set in stone.

Not bad and risk on both sides

All in all, the deceleration of core inflation bodes well for future headline numbers. HICP is therefore on track to hover around the 2% target in 2026. Still, there are some risks ahead beyond fuel duty developments. Selling price expectations of Dutch businesses for the months ahead have crept up recently, reaching their highest level in twelve months, according to the European Commission's January survey. The indirect impact of the trade war - through Chinese exports being redirected from the United States to Europe - could exert a more substantial depressing effect on prices than currently anticipated.

Source: ING