Denmark’s inflation decelerates in August, likely to rise slightly in months ahead

Denmark’s inflation slowed in the month of August. Consumer price inflation decelerated to 1 percent year-on-year, from 1.1 percent the month before and lower than expected 1.2 percent. Inflation is expected to regain momentum driven by higher prices of energy and food, noted Nordea Bank in a research report.

The biggest negative contribution to the inflation figure were holiday home rents and travel. On a sequential basis, consumer price index dropped 0.4 percent in August. The fall was driven by the usual seasonal reduction of prices of package holidays and holiday home rents. Recreation and culture, which includes package holidays, subtracted 0.32 percentage points from the monthly change in the overall inflation. More surprisingly also food prices dropped, subtracting 0.13 percentage point.

On a year-on-year basis, inflation dropped 0.1 percentage point to 1 percent in August – after staying unchanged at 1.1 percent in the previous three months. Housing and transport are still the main contributors. Together these two categories account for over 0.6 percentage point of the total rise in year-on-year inflation. Meanwhile, lower food prices have begun subtracting from inflation. Nevertheless, with the poor harvest in several nations including Denmark, food prices are likely to move higher again in the coming months, noted Nordea Bank.

Danish inflation is likely to rise slightly in months ahead, and reach about 1.5 percent at the end of 2018. This expected rise might partially be driven by positive base effects from higher prices of petrol- this will continue to put upward on year-on-year inflation figures. At unchanged oil prices in DKK, transport alone might contribute about 0.4 percentage points to year-on-year inflation for the remainder of 2018. Meanwhile, services prices are likely to move higher in line with the uptick in nominal wages. In the second quarter Danish wage rises in the private sector reached 2.6 percent year-on-year, the highest level since 2010.

“We expect this higher wage inflation to be partly reflected in an acceleration in especially service prices as companies will try to protect their profit margins”, added Nordea Bank.