Energy de-escalation inflation but also fears significant further increases in prices for both food and the “main body” of the consumer price index. This is the big “threat” of the new year: the growth of “inflation of the poor”, i.e., a further rise in the cost of the basket of essentials, as a result of which it will hit the incomes of the most needy harder.

As we approach the end of the year, forecasts regarding further price movements come to the fore. The economic staff will make their own projections with the final draft budget, raising the bar to almost 10% for this year (average annual inflation 2022), but also to a high 5% for 2023. This means that in addition to the registered increase or will be reflected by the end of the current year, new price increases will be added, which will reach 5% on an average annual level. These estimates also highlight the difference between accuracy and inflation. Very soon, within the next few weeks, inflation, mainly for electricity and, secondarily, for natural gas, is likely to fall to zero. This does not mean that prices will be low. They simply will not be higher than the corresponding last year. By spring, the same will happen with motor fuel and heating oil. And gradually, energy inflation, which has occupied the world community throughout 2022, will approach zero, perhaps even become negative. For the main categories of energy products, prices have changed as follows:

• In the power industry, the wholesale price is set in November at about 205 euros per MWh. Retail prices fluctuate around 16 cents for households. Last December, the wholesale price was 235 euros, higher than now. And that’s not all: last year, households paid an adjustment clause and received a state subsidy, which was issued according to criteria (up to 300 kilowatt-hours per month, etc.). This year the subsidy is horizontal and covers the retail price. Well, in the power industry at the retail level, inflation began to turn negative. Even if the wholesale price increases, the retail price will remain the same. Therefore, the burden of inflation from the current one is significantly limited. The price of a kilowatt-hour, of course, remains at a much higher level than before the crisis, and this is a “hard legacy” for households.

The sharp rise in electricity and gas prices this year will be a heavy legacy for consumers in 2023, even if price increases stop.

• Natural gas inflation reached 200% or more during 2022. Considering that the price on the Amsterdam Stock Exchange has recently stabilized at the level of 100-120 euros per MWh, the annual rate of change is starting to decrease every week. Last December, for example, the retail price per kilowatt-hour was close to 12-13 cents. That’s the price again this year in November, even with a 2.5 cent horizontal subsidy from DEPA. In January 2022, the price of natural gas soared to 15 cents. Therefore, if there are no unpleasant surprises on the world gas price front, at the beginning of the year it is quite likely that we will see zero or even negative inflation for this fuel as well.

• The problem with motor fuels remains. When in December 2021 a liter of diesel fuel cost 1.48 euros, and today it costs 2.03 euros, it is clear that inflation is still “running” at a rapid pace. Unleaded, the same: last year a liter cost 1.746, and this year 2.087. As for heating oil, from 1.128 euros last year (without subsidies) this year it has reached 1.278 euros, and even after a horizontal subsidy of 25 cents from the state and 7.5 cents from refineries. For motor fuels and heating oil, inflation will start to decrease from spring.

The big problem is still in the food. Hundreds of under-the-radar household basket codes continue to rise in price, as evidenced by accelerating inflation in the food sector. The annual rate of change has already reached 14%-15% and is unlikely to slow down in the near future. In addition to food, a big concern is “structural inflation”, which tracks the course of prices not related to fuel and food. To arrive at a forecast that average annual inflation will approach 5% in 2023, economists are forecasting a strong pace in early 2023 and a slowdown from spring. The point, however, is that from the new year households will have to adjust to even higher price levels, with the possible exception – and this is provided that there are no unpleasant surprises – in the energy sector.

Increase in interest rates

Households will have to deal with 2023 and the side effects… of the drug that the European Central Bank will inject in even greater quantities to fight inflation: higher interest rates. On the one hand, the family budget will suffer due to the continued rise in prices, and on the other hand, due to the increase in the value of money. In fact, central bankers are asking for monetary policy to be aligned with fiscal policy for the future. In practice, this means that any support measures must be absolutely targeted. In other words, horizontal interventions should be avoided. Also next year there will be a lot of talk about salary increases. So far, only a minimum wage increase is on the horizon. No increases are planned for other public and private sector employees.