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COST OF LIVING

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
The Danish central bank says higher wages could get in the way of efforts to control inflation. Photo: Philip Davali/Ritzau Scanpix

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?

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ECONOMY

’Record number’ of foreigners move to Denmark for work

A record number of people moved to Denmark from abroad for work reasons in 2022, according to national agency Statistics Denmark.

’Record number’ of foreigners move to Denmark for work

A total of 31,600 people moved to Denmark to work last yer, according to a Statistics Denmark review released on Tuesday.

The figure corresponds to a 24 percent increase compared to 2021 and is the highest in the history of the statistic, which goes back to 1997.

The average number of work immigrants in the decade prior to 2022 was 21,000 people.

Specifically, the number describes the amount of people who were given work permits in Denmark in a given year.

The fact that the statistic has reached a historical high is remarkable, according to an economist.

“In a time with a major labour shortage, Danish businesses have succeeded in recruiting labour from abroad. That is a big success story, which certainly ensures growth and stability in the Danish economy in the period after the coronavirus pandemic,” senior economist Tore Stramer of the Danish Chamber of Commerce told news wire Ritzau.

“The large inflow of foreign labour has held of a threatening overheating of the labour market and ensured stable high growth in the economy,” he said.

READ ALSO: Danish parliament set to vote through relaxed work permit rules

Broken down by nationality, the largest proportion of people moving to Denmark to work came from EU countries in Eastern Europe.

Some 6,000 Romanian nationals were granted Danish work permits in 2022, with 3,700 coming from Poland.

Employment levels in Denmark continue to set records, confounding an uncertain economic outlook and high inflation.

READ ALSO: Danish economy defies headwinds to grow by 3.6 percent

Foreign labour is a driving factor for high employment levels, Stramer said.

“The large inflow of foreign labour has been the absolute primary factor behind the strong rise in employment in recent years,” he said.

“Specifically, foreign labour has driven around 40 percent of the overall increase in employment over the last three years,” he said.

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