Danish inflation fell to 7.7 percent in January

Consumer prices in January were 7.7 percent higher than a year prior, according to new data. The inflation figure is one percentage point lower than in December.

Danish inflation fell to 7.7 percent in January
Inflation has fallen for three successive months in Denmark but prices are still rising. File photo: Kristian Djurhuus/Ritzau Scanpix

High inflation in late 2022 continues to show signs of slowing, according to new figures released by Statistics Denmark on Friday.

After peaking at 10.1 percent in October, inflation has now fallen in three consecutive months.

The “steep” drop in inflation was welcomed by senior economist Jeppe Juul Borre of Arbejdernes Landsbank in comments to news wire Ritzau.

“Price increases have made it around 35,000 kroner more expensive for an average Danish family in annual consumption. The falling inflation will therefore undoubtedly be a source of relief for many Danes,” he said.

The lower inflation rate means that, although prices are still increasing, they are doing so at a slower rate than before.

“Core inflation” or kerneinflation is the inflation of prices excluding food and energy prices and is sometimes used by economists because food and energy are susceptible to large swings in price.

The measure can reflect how far inflation has spread to the rest of the economy.

Core inflation did not increase as much as regular inflation in 2022 but is now at 6.6 percent according to Statistics Denmark’s latest figures. That percentage is unchanged from December.

“That is unfortunately a very bad sign because it shows that inflation has taken hold in the Danish economy,” senior economist with Sydbank, Søren Kristensen, wrote in an analysis of the figures.

Prices at cafes and restaurants kept core inflation up in January, he wrote.

He added that “towards the end of the year we could land on somewhat more normal inflation levels”.

This could mean that collective bargaining agreements, negotiated during spring when inflation is expected to still be relatively high, could eventually result in effective wage rises in 2024, he noted.

READ ALSO: Cheaper electricity on the way for 2.5 million Danish customers

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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?