Danish headline inflation slows down year-on-year in July

Denmark’s inflation eased in the month of July. On a year-on-year basis, the headline inflation slowed to 0.4 percent from June’s 0.6 percent, owing to smaller-than-expected increase in rents on summer houses.

Sequentially, the consumer price index rose 0.6 percent in July. As usual in July the biggest rise came from rents on summer houses adding 0.23 percentage point to the monthly rise. Nevertheless, this rise was much smaller than anticipated as rents on summer houses in July 2018 added 0.54 percentage point to the monthly rise.

The relatively small monthly rise in rent on summer houses caused Restaurants and hotels to make the biggest drag to the annual change. In total it subtracted 0.22 percentage points from the overall inflation rate. Meanwhile, higher prices on food and non-alcoholic beverages have again begun to make a considerable positive contribution. In July it positively contributed 0.26 percentage point to the year-on-year rise.

Danish inflation has been much lower than anticipated in 2019. This is mainly due to a very subdued rise in rents. Part of the explanation for this is likely the sharp fall in yields on mortgage bonds which has triggered record low funding cost for properties.

“On average, we expect Danish inflation to reach 0.8 percent in 2019, the same as in 2018. Underlying we still expect to see a slow upward trend because of higher wages. Wages have been rising since 2014. This is expected to cause some spill-over effects mainly resulting in higher service price inflation. But it will only come into reality once the effects from the falling bond yields start to fade away”, said Nordea Bank in a research report.