Danish inflation likely to continue on upward trend, to average 1.1 pct in 2017 – Nordea Bank

Denmark’s consumer price inflation slowed to 0.8 percent on a year-on-year basis in May, coming in lower than consensus projection. Meanwhile, core inflation remained the same at 0.9 percent.

The biggest positive contribution to inflation was housing, which added 0.33 percentage points to the headline figure. Meanwhile, food and non-alcoholic beverages contributed 0.21 percentage points, while transport added 0.18 percentage points.

On the contrary, the sharp decline in prices on telephone services, which took place in July 2016, continues to exert strong downward pressure on communication. Telephone service prices fell 12.1 percent year-on-year, thus negatively contributing 0.21 percentage points to the headline figure. Furthermore, furnishings and household equipment led to a downward pressure, subtracting 0.09 percentage points.

In spite of the setback seen in the May figure, Danish inflation is expected to continue on the upward trend that has been taking place since autumn last year, noted Nordea Bank in a research report. This would be partly boosted by base effects from telephone services that is likely to lift the year-on-year inflation by 0.2 percentage points in July. Furthermore, the labor market would greatly add to the headline figure.

“On these expectations, we believe that the Danish CPI will grow by an average of 1.1 percent in 2017– the highest level since 2012”, added Nordea Bank.