Inflation in Denmark at new 40-year high

Prices of everyday goods in Denmark were 10 percent higher on average last month than in September 2021, with inflation now at its highest since 1982.

Inflation in Denmark at new 40-year high
The average price of consumer good in Denmark is now up 10 percent compared to one year ago-. Photo: Bo Amstrup/Ritzau Scanpix

The latest update of Statistics Denmark’s consumer price index shows that inflation has further pushed up prices for people living in Denmark.

Prices in September 2022 compared to September 2021 represent the highest one-year inflation rate since 1982 when it was 10.1 percent, according to the agency.

The inflation figure represents an average or general increase in prices. Prices changes for individual items or product categories can be higher or lower than the overall figure.

The Danish Chamber of Commerce on Monday estimated that current inflation rates could cost an “average” Danish family of two adults and two children between 40,000 and 45,000 kroner.

“I did not expect us to see two-digit inflation rates. I thought that belonged to the history books,” the interest organisation’s senior economist Tore Stramer told news wire Ritzau.

“We expect private spending to go down during the winter. The also means that activity in the Danish economy will decrease during the winter months. But we reserve the right to remain optimistic because consumers on average have quite healthy private finances after a long [economic] peak,” he said.

Electricity and gas prices were again primary factors in the high level of inflation in September, Statistics Denmark notes.

“This must be seen in light of the war in Ukraine and the restrictions the EU and Russia have placed on each other,” Stramer said.

“But we also come from a period prior to the war when price increases were very high. We’ve been hit be a perfect storm of inflation where high demand after the coronavirus crisis, problems with supply and energy crisis have really hit hard,” he said.

READ ALSO: EXPLAINED: What’s causing the highest inflation rate in Denmark for almost 40 years?

The economist said he expects inflation to hit a peak this month, reaching around 11 percent. It will then gradually begin to fall, he predicted.

“Not until summer 2023 will we see the change of inflation dropping to a more normal level around 2-3 percent,” he said.

That is partly because the inflation measure compares the price to a year prior. By next summer, the earlier price will itself be high.

Stramer also said that “the hope is that when energy prices fall again, inflation will follow”.

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Danish national bank says wage increases will keep inflation high

Thousands of people who work in Denmark are set to receive wage increases under new collective bargaining agreements, but the flip side for private finances is a likely knock-on effect maintaining inflation.

Danish national bank says wage increases will keep inflation high

Wage increases given to people under the Danish labour system in 2023 and 2024 could help to keep inflation levels up, according to a new forecast by the Danish central bank, Nationalbanken, published on Tuesday.

The central bank publishes two forecasts each year for expected developments in the Danish economy.

“Inflation in Denmark is expected to come down significantly during 2023 as the inflation pressure driven by global conditions eases,” the bank stated.

“But that will be replaced by an inflation pressure driven by domestic circumstances resulting from higher wage increases,” it wrote in the forecast.

Collective bargaining agreements between employer confederations and trade unions this spring are likely to see wage increases for workers across sectors, due to higher living costs connected to inflation.

READ ALSO: Danish store workers get pay rise in new bargaining agreement 

Inflation is predicted to finish at 4 percent for the whole of 2023. That is lower than the inflation rate for the whole of 2022.

Next, inflation will reach 3.6 percent for the year according to the new forecast. This is higher than the figure given for 2024 in the previous forecast, which was 1.7 percent.

Core inflation or kerneinflation, a measure of inflation which does not account for the price of energy and raw food materials, is expected increase as a result of the wage rises.

The measure is predicted to end at 6.2 percent this year and 4.3 percent next year.

The central bank called for political measures to keep a rein on inflation.

“At the current time, Denmark and the eurozone have largely the same challenges in relation to bringing down inflation with an outlook of wage increases which are not compatible with stable, low inflation in the long term,” the bank writes.

“Potential new financial policy that increase capacity strain on the economy should, as a minimum, be responded to with measures that ease the strain in other areas,” it said.

The risk of inflation taking hold in a spiralling increase of prices and wages still exists, the central bank argues. As such, it advocates political intervention should the risk increase.

In such a spiral, higher wages result in higher costs for companies, which raise their prices, meaning consumers need renewed wage increases to maintain their purchasing power.

READ ALSO: Will falling inflation in Denmark mean lower living costs?