Danish inflation slows in November, likely to accelerate in 2018 on higher housing rents

Denmark’s inflation dropped in the month of November, coming in below consensus expectations. Consumer prices fell 0.3 percent sequentially, while on a year-on-year basis inflation slowed to 1.3 percent from 1.5 percent. On a sequential basis, the drop was mainly due to seasonal effects. Recreation and culture were the major drag, negatively contributing 0.15 percentage point from the month-on-month figure. This was mainly due to lower prices of package holidays. Transportation also contributed negatively as lower air tickets prices countered the higher prices of gasoline. Meanwhile, food contributed positively, mainly due to higher prices of dairy products and bread.

Core inflation also came in lower in the month at 1.3 percent year-on-year, slower than October’s 1.4 percent. Prices of services rose 2.4 percent year-on-year in November, up from 2.3 percent last month. Meanwhile, prices of goods just rose 0.2 percent. The lower goods inflation was partially caused by lower taxes on cars that were implemented in October. Cars negatively contributed 0.09 percentage point from the overall year-on-year inflation in November.

Food added the most to the headline figure in November, contributed 0.40 percentage point. This mainly comes from higher prices of milk, butter, meat and coffee. Housing also made a huge positive contribution, adding 0.36 percentage point to the headline figure.

Inflation in Denmark is expected to remain around the current level in the months ahead, noted Nordea Bank in a research report. Increased food prices and housing rents would continue to exert upward pressure on the year-on-year inflation figures. Meanwhile, lower base effects from oil prices would begin drag down inflation.

“We expect Danish inflation to increase by 1.2 percent in 2017, compared to 0.3 percent in 2016. In 2018 we expect Danish inflation to reach 1.5 percent as especially Housing rents are expected to account for an even bigger lift”, added Nordea Bank.

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