Danish headline inflation remains unchanged in December, likely to move slightly higher in 2019

Danish inflation came in the same in the month of December. On a year-on-year basis, the headline consumer price inflation remained at 0.8 percent. Meanwhile, core inflation also stayed the same at 0.7 percent. The difference between inflation in Denmark and the euro area is shrinking rapidly.

On a sequential basis, the consumer price index dropped 0.3 percent in the month. This was partly because of declining oil prices, which meant that Transport subtracted 0.15 percentage points from the change month-on-month. Moreover, lower butter prices also subtracted from the headline figure as food and non-alcoholic beverages subtracted 0.05 percentage points.

On a year-on-year basis, inflation remained at 0.8 percent, mainly driven by housing as it contributed for over 0.4 percentage points of the total rise in year-on-year inflation. Moreover, higher prices on package holidays contributed positively to the headline rate as Recreation and culture added 0.17 percentage points. Meanwhile, because of the recent decline in oil prices transport was almost unchanged in December – markedly different compared to previous months when transport added around 0.3 percentage point to the year-on-year changes.

In December, euro area’s HICP fell considerably to 1.6 percent year-on-year, mainly because of falling oil prices. Given the unchanged Danish CPI at 0.8 percent year-on-year the gap between inflation in Denmark and the euro area dropped to 0.8 percentage point in December compared to a peak of 1.5 percentage points in September 2018. This difference is expected to shrink further in the months ahead, noted Nordea Bank.

Danish inflation is expected to move slightly higher this year. This expected rise will mainly stem from prices of food where the negative base effect will disappear.

“In February 2019 we expect a significant increase in rents, which due to a weight of more than 20 percent in the overall CPI will make a major contribution. On average, we expect the Danish CPI to be 1.2 percent y/y in 2019, up from 0.8 percent y/y in 2018”, added Nordea Bank.