In 2022, inflation in the Netherlands reached levels that we had not seen for years. Yet the world of crypto then entered a deep bear market. Now inflation appears to be slowly picking up again, according to the latest monthly data. This can have various consequences crypto.
Dutch inflation climbs up again
Statistics Netherlands (CBS) publishes every month the inflation data of the month before. The figures for May are not quite ready yet, but Statistics Netherlands has already made a ‘quick estimate’. This is an estimate of the prices of a basket of goods based on incomplete data. The final figures, which the institute wants to reveal on June 6, may therefore differ.
According to the quick estimate overall inflation in May was 6.1% compared to May 2022. That is significantly higher than the April figure, which was 5.2%. For the time being, the figure seems to have bottomed out at around 4.4% in March, since inflation has started to climb again.
At the moment inflation is mainly caused by services, industrial goods and food and drink. Ironically, fuels are no longer the biggest problem, as they are currently causing negative inflation (deflation in jargon).
Nevertheless, companies must ensure that they do not make a loss because inflation has wreaked havoc on the economy. So they still have to charge higher prices. That seems to be the reason for the high inflation of, for example, industrial goods, which eventually end up in everything.
Consequences of inflation on crypto
Meanwhile, the European Central Bank (ECB) continued untiringly in May to raise key rates. This is now at 3.25%. This means that it will become more expensive for many people and companies to borrow money. Because the economy is based on debt, this theoretically curbs inflation.
This had a huge negative effect on cryptocurrencies in 2022. It also became less attractive to put borrowed money in financial markets, which caused many shares to fall sharply in value, for example. Crypto was also pulled into this, which eventually led to a chain reaction of bankruptcies for crypto companies.
Unfortunately, this year it has become clear that this has an additional disadvantage. The global banking system is based on the value of government bonds, which have fallen sharply in value due to rising interest rates. This caused a massive banking crisis, which crypto investors saw as positive for bitcoin (BTC) and some other coins. The higher interest rates can therefore cause several reactions.