Denmark hits new inflation low

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Inflation in Denmark fell to just 0.3% on an annualised basis in December from a rate of 0.5% the month before, taking the country into inflation territory not seen since modern records began in the late 1960s.

Handelsbanken expected an even weaker figure, stating prior to the release of the latest official figures that it expected a rate of just 0.1% against a consensus of 0.2%. As it stands, the new figure is still the lowest since the monthly consumer price index series started publishing in Denmark in 1967.

Ominously, Nordea Markets said in its response to the latest figures that “over the coming months, we expect it to fall further”.

As in many markets, it was falling energy costs, particularly petrol costs, that pushed inflation down. In contrast, housing costs continue to remain relatively higher than the average inflation rate. This is expected to keep Denmark’s overall rate of inflation marginally above the eurozone average through 2015, because housing costs have a relatively heavy weighting in the local inflation index, Nordea Markets suggests.

Inflation is likely to fall to a rate of 0% in coming months, as the effects of lower energy costs as well as the rollback of an energy tax, contribute to push prices lower.

However, the Nordic bank is forecasting that inflation will return to an annualised rate of 1% by the end of 2015.

Denmark will continue to be affected by developments in the eurozone, given that its currency is effectively pegged to the euro and its trade weighted balance of payments.


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