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Danish inflation accelerates in October, likely to average 1.2 pct in 2020

Denmark’s inflation accelerated in the month of October. On a year-on-year basis, Danish headline inflation rose to 0.6 percent from September’s 0.5 percent. Moreover, core rate rose 0.1 percentage point to 0.8 percent. Nevertheless, substantially higher inflation will just occur once rents on housing starts to rise again.

Sequentially, consumer price index rose 0.4 percent. Higher prices of electricity made the biggest contribution, adding 0.12 percentage point to the monthly rise. Moreover, prices of air tickets rose in October due to autumn holiday. On the other hand, slightly lower prices of hotels and food subtracted the most.

Measured year-on-year Danish consumer prices rose 0.6 percent in the month, the highest rise since May. In spite of higher prices last month electricity is still making the most negative contribution, subtracting 0.17 percentage point from the annual change. This is one of the key reasons for the overall drop in prices of goods.

“For 2019 average inflation will most likely end at 0.8 percent. This is the same as in 2018 but still much lower than expected at the beginning of the year – especially given the fact that the output gap in the economy is positive”, said Nordea Bank.

A key driver for the unusually low inflation has been a soft rise in rents, which has caused housing to make a much smaller contribution compared to previously. Part of the explanation for this is the sharp fall in yields on mortgage bonds, which has triggered record-low financing costs for properties.

“Looking into 2020 we expect Danish inflation to reach an average of 1.2 percent. A key driver for this expected development is higher rents as the drag from lower mortgage yields will start to fade away”, added Nordea Bank.

By Aditi Awati
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