Danish headline inflation accelerates in June, likely to move higher in months ahead

Danish inflation rose in the month of June, after staying at 0 percent for two consecutive months. On a sequential basis, the consumer price index rose 0.1 percent, while it rose 0.3 percent year-on-year, underpinned by higher prices of cigarettes. Core inflation came in at 0.9 percent year-on-year, accelerating from 0.7 percent in May.

Prices on gasoline have begun to move higher again. In June higher prices of gasoline and diesel made the single largest contribution to the rise in the consumer price index compared to the previous month. In total, transport contributed 0.21 percentage points to the rise, while on the other hand lower prices of restaurants and hotels negatively contributed 0.12 percentage points.

In spite of the recent rise, oil prices measured in DKK are still more than 30 percent below last year. This caused transport to negatively contribute 0.20 percentage points from the year-on-year changes. If oil prices remained the same, this negative base effect will continue to weigh in on Danish inflation for the remainder of 2020, noted Nordea Bank in a research report.

Surprisingly there is still no visible impact from the large price rise of cigarettes that was officially implemented on 1 April and might make a positive contribution of close to 0.5 percentage point to the year-on-year change in the CPI. This is most likely due to the fact that most stores in June still were able to sell cigarettes with the old tax stamp.

“Going forward, we expect Danish inflation to move higher over the coming months mainly as a result of the numbers starting to reflect the price increases of cigarettes. At the same time, the higher activity level in the Danish economy is expected to pave the way for small price increases especially of domestic services. All in all, we expect this to cause Danish inflation to move higher compared to the Euro area in the coming period”, added Nordea Bank.