Danish wage growth likely to accelerate slightly; consumer prices to remain stable

Danish consumer prices had increased a mere 0.1 percent year-on-year in May. A sharp decline in clothing prices was quite a surprise. Women’s clothes’ prices, for instance, dropped 7.3 percent year-on-year. It alone lowered inflation by over 0.1 percentage point. Inflation in Denmark is still likely to accelerate in the second half of 2016 as the effect of lower oil price diminishes from the figures, said Danske Bank in a research report. Inflation is now expected to accelerate to 0.5 percent this year. Also, there are plans to abolish the so-called PSO charge on electricity.

The government has not yet decided anything; however, it seems at least some of the cuts might be funded by higher taxes. Thus, there will not necessarily be any relief for consumers overall. However, the move might lower the inflation figures.

Denmark’s wages and the prices that reflect them are increasing by nearly 2 percent per year. Wages in the private sector reached 1.8 percent in the first quarter. Thus real wages are increasing robustly at present. In 2017, most of the labor markets are set to renegotiate agreements, though higher growth in real wage and sluggish growth in productivity have considerably raised the share in wage of production costs.

However, growing employment provides workers a stronger hand to play with, noted Danske Bank. Wage growth is expected to rise slightly, while real wages will keep in increase, but not at the current pace because of accelerating inflation, according to Danske Bank.