What is 2023 going to be like for... my wallet?

A historically tight labor market, sharply fluctuating stock prices and inflation reaching into the double digits. 2022 has been quite an eventful year, economically. But what will 2023 bring us? In this new series, Charles Kalshoven, macroeconomist and senior strategist at APG, tells us what we can expect from the housing market, the labor market and the stock market and more, in the coming year. Today part 1: What is 2023 going to be like for my wallet?

Whether wages will rise faster than the price of the so-called shopping cart, and whether the government will take measures to mitigate the effects of high inflation, are important things to know regarding the content of our wallets. Although there are still many uncertainties, particularly about inflation, Kalshoven does not see things looking bleak for the average Dutch person’s wallet in 2023. However, differences between individuals will be greater than in other years.

Wage increase
Looking at wages, the Central Planning Bureau (CPB), the Dutch Central Bank and others expect them to rise more than 4 percent next year. That may seem a bit meager with inflation at 14.3 percent in October. Consequently, the FNV demanded a 14.3 percent wage increase this month. Kalshoven believes that is not realistic. “Companies will also have higher energy bills and possibly higher rent, so that makes it hard for them to say ‘we’ll provide a raise of over 10 percent.’ They also often can’t fully pass on the increased costs to customers because then they’ll lose market share. A 4 percent wage increase may not seem like much when you look at inflation, but it is higher than we’ve experienced in years.”

Inflation
The question then becomes what prices will do. Inflation is expected to reach about 10 percent over 2022. The CPB now assumes that inflation will come in at 2.5 percent next year. “That would be a lot lower than the European Central Bank’s expectation of 5.5 percent for inflation across the euro zone. But in and of itself, this is not surprising. In fact, Dutch inflation is well above European inflation this year. Also, the energy ceiling agreed on at the last minute before Prince’s Day will suppress inflation.”

Good to know: the CBS inflation figure for this year is an overestimate of what people will really feel in their wallets. That’s because the basic premise of the masters of calculation is the fiction that every Dutch person signs a new energy contract every month, and thus has to deal with this year’s high variable tariffs. In reality, that only applies to a limited group, because many people have a fixed energy contract. “For next year, therefore, a price decrease will be incorporated into the inflation rate that not everyone will recognize.”

Energy ceiling
If wages actually do rise by 4 percent and inflation remains limited to 2.5 percent, the average person in the Netherlands need not fear a loss of purchasing power next year, especially since the government is assisting with temporary measures, such as the energy cap and an excise tax cut on gasoline. “However, there are big differences between Dutch people. Whereas the average wage increase is about 4 percent, the minimum wage, welfare benefits and the state pension will rise by 10 percent next year. It also makes quite a difference whether you live in a well-insulated house. If you do, you will be more likely to have low energy bills and the energy cap is not even necessary. In that case, you will benefit from wage growth and limited inflation. However, if you live in a poorly insulated house and your energy consumption exceeds the price ceiling, you will be worse off.”

There are ways to temper the effects of high energy prices on the wallet, though. Kalshoven: “When tariffs are low, we don’t pay as much attention to our energy consumption, but now many people are still turning down their heating, taking shorter showers or taking the car less often.”

Just as it matters quite a bit whether you live in a well-insulated house or not, there are other factors that can have a big impact on a person’s wallet. “Static purchasing power is the illusion that nothing changes in your situation, but this is far from true for everyone, of course. Major events in particular really take a bit out of it: for example, divorce, losing your job, or having a child. And renewing your mortgage has become a lot more expensive,” Kalshoven says. “There are also positive examples, of course: your wallet can benefit if you find a (new) job, and you save housing costs if you move in with your partner. These are much bigger effects than you see in the purchasing power charts.”

Slight plus
Despite the fact that we are going into a recession, Kalshoven is optimistic about 2023. “Unemployment will rise slightly, but because of the tightness in the labor market, it will be limited. Many workers can therefore expect a wage increase of more than 4 percent, and the minimums of as much as 10 percent. Inflation will probably end up being considerably lower, at 2 to 3 percent. Then there are the government measures, which help the purchasing power of the average person in the Netherlands, although there will be substantial differences.”