Inflation falls in Denmark for second consecutive month

Consumer prices were up 8.7 percent last month compared to December 2021, but the inflation rate has now dropped in each of the last two months.

Inflation falls in Denmark for second consecutive month
Food and fuel are costly in Denmark but inflation has fallen for the last two months. Photo: Bo Amstrup/Ritzau Scanpix

The latest inflation figure was published by Statistics Denmark on Tuesday and could be a source of “huge relief” that inflation has now peaked, an expert said.

“Danes have faced the highest inflation for 40 years and that has already dug deep into their wallets. Declining inflation will undoubtedly cause some happiness and relief for many Danes,” senior economist Jeppe Juul Borre of Arbejdernes Landsbank told news wire Ritzau.

Energy continues to be a driving factor in high prices, Statistics Denmark states.

But prices increased at a lower rate than the previous month between October and November – the first drop in inflation for some time.

In November, inflation was calculated to be 8.9 percent, compared to 10.1 percent in October.

Despite the apparently encouraging trend, another measure of inflation suggests that there may still be bumpy times ahead.

“Core inflation” or kerneinflation is the inflation of prices excluding food and energy prices and is sometimes used by economists as a measure of how entrenched inflation has become.

“Core inflation is increasing. It can react with some delay, however. We expect both overall and underlying inflation to decline during the year,” said Allan Sørensen, senior economist with the Confederation of Danish Industry (DI), in a written comment.

“Falling prices for oil, petrol and raw materials such as steed, wood and grain will help to bring down inflation. The large decrease in transport rates will also help to take the strain off import costs,” he said.

“If prices continue at the current level, that will soon help to give a considerable reduction to inflation in the coming months,” he said.

READ ALSO: How much will energy cost in 2023 in Denmark compared to 2022?

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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?