Danish inflation remains unchanged in November, likely to average 0.8 pct in 2018

Denmark’s headline inflation remained the same in November. On a year-on-year basis, the consumer price inflation came in at 0.8 percent, while the core rate rose to 0.7 percent. Danish inflation remains low compared to the euro area; however, this will soon begin to change, noted Nordea Bank in a research report.

Sequentially, the consumer price index dropped 0.3 percent in the month. Nearly half of this was because of declining oil prices, which meant that Transport negatively contributed 0.14 percentage point from the change month-on-month. Moreover, lower prices of package holidays contributed negatively, while recreation and culture subtracted 0.1 percentage point. Meanwhile, prices of food and non-alcoholic beverages rose a bit.

On a year-on-year, housing and transport mainly contributed to the headline rate. Together these two categories account for over 0.7 percentage points of the total rise in year-on-year inflation. Meanwhile, lower food prices continued to contribute negatively. Nevertheless, if food prices remain at the current levels, this negative base effect will disappear from next month, stated Nordea Bank.

In spite of a minor fall in EUR HICP in November, the gap between inflation in the euro area and Denmark is still quite large. Nevertheless, with the declining oil prices and the recent rise in food prices in Denmark this difference will soon begin to fall. Danish inflation is expected to move slightly higher, going forward. This anticipated rise will in coming months mainly stem from prices of food where the negative base effect will disappear.

“In February 2019 we expect a significant increase in rents, which due to a weight of more than 20 percent in the overall CPI will make a major contribution. On average, we expect Danish CPI to be 1.2 percent in 2019, up from 0.8 percent in 2018”, added Nordea Bank.