Danish headline inflation slows down in January, likely to move slightly higher in remainder of 2020

Denmark’s headline inflation came in a bit below expectations in the month of January. On a sequential basis, the consumer price inflation rose 0.1 percent. Most of the subcomponents contributed positively, but the usual January sales of clothing and footwear negatively contributed 0.42 percentage point. The downward price pressure on clothes is a major driver for the unusually low inflation in recent years. In the past year alone the price index for clothing and footwear has dropped 5.3 percent as fierce competition from foreign internet shops and more transparency are reducing sellers’ pricing power.

On a year-on-year basis, inflation eased 0.1 percentage points to 0.7 percent in January after four straight months of small rises. Clothing and footwear negatively contributed the most, subtracting 0.23 percentage point. A bit surprising, food and non-alcoholic beverages remained unchanged in January. In recent months prices of pork rose sharply because of the outbreak of African swine fever in China, but on the Danish market this rise was countered by lower prices of bread and butter. Housing contributed positively by 0.14 percentage points of the total rise in year-on-year inflation.

“For the rest of 2020, we expect Danish inflation to move slightly higher, recaching an average of around 1.0 percent. In the coming months the expected increase will mainly stem from prices of food. Also, higher rents on housing are expected to lift Danish inflation, starting next month”, said Nordea Bank in a research report.