Inflation down in Denmark but forecasts tentative for 2023

Inflation took a step backwards in Denmark in November but the cost of food and fuel remains high.

Inflation down in Denmark but forecasts tentative for 2023
Inflation fell in Denmark in November but high prices are still prevalent. Photo: Bo Amstrup/Ritzau Scanpix

Prices of consumer goods and services were up 8.9 percent on average in November compared to November 2021.

Although this is a severe figure for inflation, it is lower than the one-year inflation figure of 10.1 percent registered by Statistics Denmark in October.

It is also the first time since December 2021 that the inflation measure is lower than the previous month’s inflation, the stats bureau said in a latest report.

“It’s a gigantic relief that inflation is finally falling,” senior economist Jeppe Juul Borre of Arbejdernes Landsbank told news wire Ritzau.

“Danes have this year faced the worst inflation for 40 years and it has eaten away at people’s wallets,” he said.

“Price increases have made it around 40,000 kroner more expensive for an average Danish family in annual costs,” he added in written comments.

Lower prices for gas, electricity, diesel and petrol in November compared to the previous month can be credited for the lower inflation rate, according to senior analyst Louise Aggerstrøm Hansen of Danske Bank.

“Today’s numbers correspond to an average family with children paying 3,250 kroner more each month on their regular costs compared to a year ago,” she wrote in a comment.

Although inflation has taken a step backwards, it is still far higher than what would be considered a normal level for prices increases year-on-year.

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

Inflation of around 1-2 percent has been around the normal level seen in recent years.

Higher inflation means that consumers’ have lower purchasing power than previously.

Forecasts for inflation trends in coming months remain tentative despite the encouraging nature of the latest figures, Borre said.

“Energy prices define the direction to a huge extent and we have recently seen how quickly energy prices can go up,” he said.

“And it’s certainly not unlikely they could go up even more,” he said.

Hansen said she expected inflation for December to be up again as energy prices rise. However, a marked drop can be expected for inflation in 2023.

That is in part because the comparison to 12 months earlier will be with prices that were already high, rather than pre-inflation prices.

“In addition, there is still a large uncertainty about the outlook for electricity and gas prices during both this winter and next,” she said.

READ ALSO: Energy prices in Denmark rise as winter weather sets in

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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?