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Danish inflation remains unchanged in August, likely to fall to 1.3% in Sep

Danish inflation remains unchanged in August, likely to fall to 1.3% in Sep

COPENHAGEN: Denmark’s inflation surprised again in the month of August by staying unchanged at 1.5 percent year-on-year after a huge jump in July. The consumer price inflation print was expected to drop to 1.1 percent, noted Danske Bank in a research report. Most of the recent rise in consumer price was due to transitory factors. The reversal was not seen in August; however, some reversal is expected to be seen in September. Out of the four biggest contributors to the recent surge in inflation, just one is expected to last, which is mobile phone services.

In 2016, roaming prices dropped noticeably, which has been pulling inflation down by 0.2 percentage points for one year. The base effect has disappeared in July. The largest contributor to the inflation rise from June to August is summer houses, as rental prices rose sharply in the summer in spite of the poor weather. Usually prices return to pre-season levels in September, even if they might fluctuate slightly during the summer months. This contribution is also expected to reverse considerably with the September print, stated Danske Bank. Book prices also contributed largely to the consumer price inflation in August. Prices rose as the summer sale on books ended in August 2017 as opposed to September 2016.

Therefore, this impact should be gone in the next month’s figures. Food prices have also contributed largely to the rise in inflation and remain something of a joker in 2017, stated Danske Bank. European prices have dropped after the price surge at the start of the year due to bad weather and a poor vegetable harvest. But, prices have not really dropped in Denmark yet. Usually there is a pretty strong link here, at least in the medium term, and food prices are likely to decrease a bit in the months ahead. The Danish government had proposed to lower car taxes two weeks ago from the current 105 percent on the first DKK 109,000 and 150 percent on the value above that to an even 100 percent. If the proposal is approved, it would make large cars considerably cheaper. But few Danish people actually drive large cars. Therefore, the effect on Danish inflation is likely to be modest, although not negligible. If the proposed removal of the nut fee is removed, which is likely to cost DKK 185 million, the effect on the CPI would be around -0.15 percentage points, said Danske Bank.