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ECONOMY

German inflation at 15-year high

German inflation has dug in at a 15-year high of 3.3 percent, according to an estimate for July released by the national statisics service on Tuesday.

German inflation at 15-year high
Photo: DPA

The figure for Europe’s biggest economy was the same as the one set in June, and represented the highest rate since December 1993, the Destatis national statistics office said.

On a monthly basis, consumer prices gained 0.6 percent from June, it added. Final figures are to be released on August 14.

Vacation services such as package holidays and lodging compounded steady increases in the costs of energy and food, Destatis said. When energy costs were stripped out, inflation came to about 2.2 percent, the statistics service noted.

But at Commerzbank, analyst Matthias Rubisch noted that even though “the price of fresh vegetables generally falls at this time of year,” a 12-month increase had reached eight percent, “making food the second biggest strain on consumer finances.”

On Monday, a survey of German consumers by the GfK institute said confidence had fallen to a five-year low owing to chronic price increases.

“The positive momentum generated by the job market and the beneficial wage and salary increases compared with last year are consequently being demolished by inflation,” GfK said.

Rubish said that “if oil prices now stay largely stable, we do not envisage the inflation rate falling before the final quarter of the year.” German authorities had hoped consumption would contribute to economic growth, which is now forecast at 1.7 percent this year and 1.2 percent in 2009.

German inflation will also ensure that price increases in the 15-nation eurozone remain well above the European Central Bank’s target of just below 2.0 percent, dampening hopes for lower interest rates in the coming months. Economist Alexander Koch at UniCredit Markets said that barring major shifts in commodity prices, he expected headline and core inflation “to move down only slightly in the coming months, with no sustained relief in sight before spring next year.”

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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