EXPLAINED: What's causing the highest inflation rate in Denmark for almost 40 years?
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- 15 Sep 2022
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Inflation is measured as a corrected average of price increases over a one-year period for product groups including food, energy, restaurant visits and clothes. This is something that keeps on rising in Denmark and across the world.
The reason, according to economists, is because we have too much money and not enough goods. The Local spoke to Senior Economist Lars Olsen from Danske Bank, to explain.
“A fundamental reason for inflation, not only in Denmark but many countries is that there’s just too much money going around trying to buy too few things, with a supply problem around the globe.
“The pandemic and the war in Ukraine has affected production and labour markets but we have been giving each other more money, such as the holiday money pay outs (feriepenge) and the corona relief funds in Denmark and that doesn’t add up. So the market is now correcting the situation in the harsh way of making everyone worse off,” Olsen said.
How much has the war in Ukraine affected inflation?
“The war in Ukraine is part of the reason for inflation because of the reduced supply of gas but this is only part of the problem.
“Inflation was going up before the war and inflation is very broad based – it’s not just energy and food prices. It includes materials, furniture, restaurant visits, electronics, anything that we buy at the moment is rising rapidly in price.”
What is being impacted the most?
“Energy prices but this is unevenly distributed. For example, the highest bills are for households with gas furnaces but only 13 percent of households in Denmark have this.
“Communal [district, ed.] heating is the most common heating system in Denmark and for most people this hasn’t gone up a lot. But we are all using electricity and that’s a lot more expensive, as well as food.”
The price of food and non-alcoholic drinks was 15.9 percent higher in August than it was in August 2021 according to Statistics Denmark.
How have people’s spending habits changed?
“People are definitely trying to buy cheaper stuff. The total amount of kroner spent is continuing to rise, especially if you include travel and restaurants but people are getting less for their money. It’s not that people are buying fewer loaves of bread but the quality of that bread is going down as people buy cheaper items.”
How does Denmark compare to other countries in terms of weathering this inflation rise?
“We’re better off than countries to the south because we use less gas. The average household in Denmark was also financially robust to start off with; we were not as damaged by the pandemic as other countries.”
How much has the cost of living risen for an average household in Denmark?
“For a family with two adults and one or more children, the annual cost of living has gone up by around 60,000 kroner compared to a year ago. Incomes are also rising so it doesn’t feel quite as bad as that. Read More...
