Danish inflation rises sharply in July to highest level since December 2012, likely to rise 1.1 pct in 2017

Denmark’s inflation rose sharply in July to 1.5 percent year-on-year, the highest level since December 2012. The sharp rise is partially because of seasonal effects. The sharp rise was much higher than consensus expectations of 0.8 percent. Core inflation doubled from 0.8 percent in June to currently 1.6 percent.

Food has made the largest positive contribution, adding 0.48 percentage point to the CPI year-on-year figures. This mainly steams from higher prices of milk, meat, butter and coffee. Food and non-alcoholic beverages account for 10.4 percent of the overall CPI.

Seasonal effects have also been a major source of the very large rise in July. Because of bad weather, prices of package holidays rose 11.7 percent to the same month last year. Meanwhile, increased demand for summer houses increased rents. This also partially explains why hotels and restaurants added 0.23 percentage point to the annual rise in CPI in July.

Lastly, the sharp decline in prices of telephone services that was seen in July 2016 no longer exerts solid downward pressure on communication. This factor alone lifted the year-on-year inflation by nearly 0.25 percentage point from June to July.

Some of the impacts that lifted Danish inflation in July are because of an unusual seasonal pattern. Thus, year-on-year inflation is expected to head slightly lower in the months ahead, noted Nordea Bank in a research report. But another major drop is unlikely as prices pf mainly services would probably continue higher because of the higher economic activity in the Danish economy.

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

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