Danish consumer price inflation accelerated slightly in December on a year-on-year basis. The headline inflation came in at 0.8 percent year-on-year, up from November’s 0.7 percent. This was the fourth straight month with higher inflation. The gradual upward trend is likely to continue this year, noted Nordea Bank in a research report.
On a sequential basis, Danish consumer price index dropped 0.2 percent. Lower prices of food and non-alcoholic beverages negatively contributed the most, subtracting 0.09 percentage point to the monthly changes. This drop is most likely attributed to intense price competition among supermarkets on certain food items up to Christmas and New Year’s Eve. Thus, the fall in food prices in December is not seen as the start of a new trend. On the contrary, food prices are expected to continue higher in 2020 as especially prices of pork are likely to rise further due to a solid rise in demand from China.
On a year-on-year basis, Danish headline inflation accelerated to 0.8 percent, the highest since April 2019. For 2019 as a whole, the inflation came in at 0.8 percent, the same as in 2018, but still lower than expected at the start of year – especially given that the output gap in the economy is positive.
A very soft rise in rents has been a major driver for the unusually low inflation, causing housing to make small contribution compared to previously. This is partially because of sharp fall in yields on mortgage bonds, which has triggered record-low financing costs for properties. Thus, even if yields are not directly a part of the Danish consumer price index, there is an indirect effect through the property market.
“For 2020 we expect average inflation of 1.2 percent. This higher inflation will mainly be triggered by slightly higher rents on housing, a continued uptick in food prices and higher taxes”, added Nordea Bank.
