Danish central bank urges political caution over inflation
The Nationalbank, Denmark’s central bank, says that high inflation will continue in the coming years and that politicians should therefore take a cautious approach to spending.
The central bank published its latest forecast for the Danish economy on Wednesday.
In the prognosis, the Nationalbank says that inflation will be at around 3.8 percent this year and 3 percent next year. Wage increases are cited as a primary factor.
The bank urged politicians to tread carefully with decisions that can impact the economy.
“We are still not where we need to be in relation to securing low and stable inflation in Denmark,” Nationalbank director Christian Kettel Thomsen said in a statement.
Core inflation – a measure of inflation that does not account for energy and raw food products – is expected to land at 6.5 percent for this year and 3.5 percent next year. The metric can be used as a measure of how established inflation has become throughout the economy.
Denmark does not have a specific inflation target, but the European Central Bank has set its target for inflation at 2 percent.
Although inflation has fallen considerably since late 2022, when it exceeded 20 percent, the Nationalbank still wants Denmark to hold back.
“If the current negotiations for the [2024] budget put down measures which increase activity in the Danish economy, then there should also be measures that temper activity just as much,” Thomsen said.
Inflation rates were last week raised for the tenth time since last summer, a decision the Centralbank says will slow inflation. It is therefore important that “financial politics do not work against fiscal policies,” Thomsen said.
The government’s draft 2024 budget, presented at the end of last month, strikes the right balance, according to the central bank.
“Financial politics should therefore continue to enable a tight economic policy, which the current draft budget also proposes,” the bank writes.
While the central bank appears to harbour some concerns about inflation, the economy is expected to grow with a 1.7 percent increase in the Danish GDP this year.
That figure is an upwards adjustment from the 0.9 percent GDP growth forecast in March.
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The central bank published its latest forecast for the Danish economy on Wednesday.
In the prognosis, the Nationalbank says that inflation will be at around 3.8 percent this year and 3 percent next year. Wage increases are cited as a primary factor.
The bank urged politicians to tread carefully with decisions that can impact the economy.
“We are still not where we need to be in relation to securing low and stable inflation in Denmark,” Nationalbank director Christian Kettel Thomsen said in a statement.
Core inflation – a measure of inflation that does not account for energy and raw food products – is expected to land at 6.5 percent for this year and 3.5 percent next year. The metric can be used as a measure of how established inflation has become throughout the economy.
Denmark does not have a specific inflation target, but the European Central Bank has set its target for inflation at 2 percent.
Although inflation has fallen considerably since late 2022, when it exceeded 20 percent, the Nationalbank still wants Denmark to hold back.
“If the current negotiations for the [2024] budget put down measures which increase activity in the Danish economy, then there should also be measures that temper activity just as much,” Thomsen said.
Inflation rates were last week raised for the tenth time since last summer, a decision the Centralbank says will slow inflation. It is therefore important that “financial politics do not work against fiscal policies,” Thomsen said.
The government’s draft 2024 budget, presented at the end of last month, strikes the right balance, according to the central bank.
“Financial politics should therefore continue to enable a tight economic policy, which the current draft budget also proposes,” the bank writes.
While the central bank appears to harbour some concerns about inflation, the economy is expected to grow with a 1.7 percent increase in the Danish GDP this year.
That figure is an upwards adjustment from the 0.9 percent GDP growth forecast in March.
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