Highest inflation in Denmark for 10 years
Inflation in the US normally hovers around 2 per cent – and was all the way down at 0.3 per cent when Covid-19 struck. Inflation in the eurozone was 4.1 per cent in October and 4.1 per cent in Denmark, which is the highest in 10 years. However, we are not yet seeing the same high price rises on consumer goods excl. energy and food in Europe and Denmark as in the US.
Inflation in Europe is being driven higher by the increase in raw materials prices and supply chain pressures – but analysts across various Danish media remain very uncertain about whether high inflation is here to stay. The consensus is that it could go either way in 2022, but that inflation has perhaps gained a little more traction in the US.
“The US is currently experiencing very pronounced price increases on used cars and car leasing. One reason is that the market for microchips is very tight at the moment – and that has hit the number of cars being produced. Hence, it is difficult to meet demand through the production of new cars, which is pushing prices higher. We can see the same trends in other markets, too,” explains Mikael Olai Milhøj.Rising wages in the US could create an upward inflationary spiral
The US economy is largely back on track, and demand for labour is high. This has fuelled the highest level of wage growth in 10 years. If wage growth begins to accelerate even more, it could ultimately push the costs of rising wages over onto prices, so consumers end up paying – and thus creating an upward inflationary spiral.
“The reaction of the central banks to this situation will be interesting to observe. Monetary policy in Denmark is largely determined by the EUR/DKK peg, but the US, UK and European central banks all have an inflation target of around 2 per cent. They may now be forced to lift their foot off the accelerator and onto the brake to prevent inflation becoming entrenched. The US central bank decided in early November to begin tapering bond purchases, thus taking the first steps towards a gradual tightening of monetary policy. This probably also means that a hike in monetary policy rates is not too far off,” says Danske Bank’s chief analyst.