Inflation Soars to Record High in Denmark

Denmark's national flag flutters in Copenhagen, Denmark, on Oct. 22, 2019. (Andreas Mortensen/Reuters)

Inflation in the northern European country of Denmark has hit a four-decade high amid soaring food and energy costs, officials said on Monday.

Copenhagen-based Statistics Denmark, a Danish governmental organization under the Ministry of the Interior and Housing, said the nation’s Consumer Price Index soared 8.9 percent in August from a year prior and was up from 8.7 percent in July.

“This is the highest annual increase in the Consumer Price Index since January 1983, when the annual increase was 9.0 percent,” officials said.

The soaring cost of living was driven largely by price changes to goods, which have increased by an average of 13.4 percent over the past year, including the annual price of food, electricity, gas, and fuel.

Core inflation, which excludes volatile prices such as food and energy, increased 6 percent annually, up from 5.5 percent a month prior.

“It is, among other things, price increases on new cars and restaurants that drag up core inflation,” officials said. “This is the highest core inflation since February 1988, when it was also 6.0 percent.”

The latest inflation figures come shortly after Denmark’s central bank followed in the footsteps of the European Central Bank earlier this month and raised its benchmark interest rate by 75 basis points, to 0.65 percent. The move marked Denmark’s second rate hike in two months after the country had previously stuck to a nearly decade-long policy of negative interest rates.

Further, the country’s government has cut its economic growth forecast for this year as well as next, citing inflation. Denmark’s finance ministry said in August that the country’s economy is expected to grow 2.8 percent this year, down from a previous forecast of 3.4 percent.

The ministry anticipates inflation to rise to 7.3 percent on average this year, up from its May forecast of 5.2 percent, and then average 3.3 percent in 2023.

“Rising Prices, Limited Growth”

“Even though uncertainty and unpredictability have become a regular traveling companion, the Danish economy stands with firm ground under its feet,” Finance Minister Nicolai Wammen said at the time, while also noting that the country is “well placed to weather a period of rising prices and more limited growth,” citing low unemployment levels and strong public finance.

Mathias Dollerup Sproegel, a senior economist at Sydbank, said in a note to clients this week that the current cost of living would result in an average Danish family having to expend an extra 40,000 kroner ($5,400) a year on consumer goods, compared with 2021.

“Inflation is the Achilles’ heel in both the Danish and the European economy,” Sproegel wrote, Bloomberg reports.

Denmark’s soaring cost of living also comes ahead of what many anticipate will be a colder than usual winter in Europe, which could further exacerbate soaring energy prices and may lead to energy rationing in some cases.

The situation has been further worsened by the indefinite closure of the Nord Stream 1 pipeline from Russia. However, Denmark’s largest energy company, Andel Energi, told DR news earlier this month that the company was “quite optimistic about this winter” and that there are sufficient gas supplies.

“But a further escalation of the supply crisis could mean something in the short term,” said Jack Kristensen, a functional manager at Andel Energi.

Reuters contributed to this report.