Danish inflation accelerates year-on-year in September, likely to reach 0.8 pct in 2019

Denmark’s inflation accelerated in September on a year-on-year basis. It rose to 0.5 percent from August’s 0.4 percent. Moreover, core rate also accelerated by 0.1 percentage point to 0.7 percent. The slightly higher inflation was driven by increased prices on services while prices on goods dropped again.

On a sequential basis, consumer price index dropped 0.2 percent. Restaurants and hotels mainly weighed on the headline figure, negatively contributing 0.25 percentage point, owing to lower rentals for holiday homes. On the other hand, clothing and footwear positively contributed 0.24 percentage point in line with the traditional seasonal pattern. The remainder of the main categories in the consumer price index dropped a bit in September, indicating that the general prices pressure in the Danish economy is still quite soft.

Consumer price index rose 0.5 percent year-on-year. In spite of higher prices on clothing and footwear, this category made the biggest negative contribution, in total negatively contributing 0.15 percentage point. On the contrary, higher prices on food and non-alcoholic beverages have again started to make a considerable positive contribution. In September it added 0.15 percentage point to the year-on-year rise.

Denmark’s inflation has been much lower than expected in 2019. A big part of this is because of a very subdued rise in rents – both on rentals for housing and for holiday homes.

Part of the explanation for this is likely the sharp drop in yields on mortgage bonds which has triggered record-low financing costs for properties. Therefore, even though yields are not directly part of the Danish consumer price index, there is an indirect effect through the property market. On average, we expect Danish inflation to reach 0.8 percent in 2019, the same as in 2018”, said Nordea Bank.