Danish inflation comes below expectations in April, likely to move higher in months ahead

Denmark recorded 0.0 percent inflation on a year-on-year basis in April. This is the lowest reading since September 2016 and a slowdown from 0.4 percent recorded in March. Nevertheless, as more than 25 percent of the index is not based on actual prices, the number should be taken with a grain of salt, noted Nordea Bank in a research report.

Because of the outbreak of the coronavirus, the data quality of the consumer price index is quite poor. Over 25 percent of the prices in the consumer price index in April are estimated by Statistics Denmark as it has not been able to collect actual prices. This also signifies that not any of the sub-indices of the index have been updated and the only information given is in the short statement released by Statistics Denmark.

The statement showed that low petrol prices negatively affected the headline rate in April, as it negatively contributed 0.56 percentage point from the annual changes in the CPI. Lower electricity also contributed negatively to the headline rate, subtracting 0.21 percentage point. Meanwhile, rents and meat contributed the most positively.

The Danish government hiked the price of a package of cigarettes by DKK 15 from 1st April, equivalent to a rise of 35 percent. In the Danish CPI, cigarettes account for 1.30 percent of the overall index. This suggests that this price rise might contribute positively around 0.5 percentage points to the year-on-year change in the CPI. Nevertheless, the sub-index for alcoholic beverages and tobacco remained nearly the same when compared to the prior month. This is most likely because of the fact that some stores in April sold cigarettes with the old tax stamp.

“Looking forward, we expect Danish inflation over the coming months to move higher due to lower negative base effects from petrol prices and as a result of the price increases on cigarettes starting to be included in the numbers”, added Nordea Bank.