Danish headline inflation eases year-on-year in May, likely reach 1 pct in 2019

Denmark’s headline inflation eased in May. On a year-on-year basis, inflation slowed to 0.7 percent from 1 percent seen in the prior month. This is the lowest since September 2018. The bigger-than-expected fall was mainly due to lower prices on electricity and travel.

Sequentially, the consumer price index dropped 0.1 percent, mainly dragged down by Recreation and culture as prices on package holidays and air tickets dropped because of the normal seasonal effects around Easter. Also, declining prices of electricity caused Housing to negatively contribute 0.11 percentage point from the month-on-month change. Meanwhile, increased prices on food and hotels contributed positively in May.

On a year-on-year basis, clothing and footwear mainly weighed down on inflation. It subtracted 0.19 percentage point from the overall inflation rate. In spite of the falling prices on electricity, housing positively contributed 0.23 percentage points. However, this was the smallest positive contribution from housing since March 2018. Food, which carries a weight of over 10 percent in all, added 0.15 percentage point in May.

According to a Nordea Bank research report, Danish inflation is likely to remain around the current level in the months ahead as especially negative base effects of Transport will make a negative contribution. Meanwhile, food prices will most likely add to the headline rate.

“On average, we expect Danish inflation to reach 1.0 percent in 2019, up from 0.8 percent in 2018. This slow upward trend is expected to continue in 2020. The main underlying driver of the pick-up in inflation is wages. Wages have been rising since 2014. This is expected to cause some spill-over effects mainly resulting in higher service price inflation”, added Nordea Bank.