Danish Inflation Rate Rises to 18 1/2-Year High of 4%

By [bn:PRSN=1] Tasneem Brogger []

Aug. 11 (Bloomberg) -- Danish inflation accelerated to 4 percent in July, the fastest pace in 18 1/2 years, adding to concern that workers will demand higher pay to compensate for the erosion of spending power.

The inflation rate rose from 3.8 percent the previous month, Copenhagen-based Statistics Denmark said on its Web site today. The median estimate of six economists surveyed by Bloomberg was for price growth of 4 percent. Prices fell 0.3 percent in the month.

Surges in food and oil costs are pushing up inflation worldwide, with price growth accelerating to 4 percent in the euro area in June, the fastest pace in 16 years. Denmark's labor shortage, with unemployment at 1.6 percent in June, means employers are more likely to give in to demands for pay increases as workers try to keep up with the higher cost of living.

``The pace of food price gains is showing no sign of easing,'' Jes Asmussen, chief economist at Handelsbanken in Copenhagen, said in a note to clients. ``Together with high energy prices, this is putting considerable pressure on households' budgets and we're now approaching price gains that are close to eating up pay rises.''

The biggest annual gain came from food and non-alcoholic beverages, which rose 10.2 percent, after jumping 9.4 percent in June, the office said. Salaries rose an annual 4.6 percent on average in the first quarter, the Confederation of Danish Employers said on May 30.

Denmark's European harmonized annual inflation rate was 4.4 percent in July, compared with 4.2 percent in June, the statistics office said. Prices slid 0.3 percent in the month.

The central bank can't use monetary policy to regulate prices as its sole policy mandate is to keep the krone pegged to the euro in a 2.25 percent band. The bank raised the key lending rate in July by a quarter point to 4.6 percent, tracking the European Central Bank.

To contact the reporter on this story: Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net