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Danish Inflation at Four-Decade Low After Economy Stagnates

Denmark’s inflation rate sank to the lowest level since at least 1967 after Scandinavia’s weakest economy stagnated in the first quarter.

Headline inflation slowed to 0.6 percent in July from 0.9 percent a month earlier, Copenhagen-based Statistics Denmark said in a statement today. That was below the 0.8 percent median estimate in a Bloomberg survey of four economists. Prices fell 0.3 percent from a month earlier.

The development may support consumer demand, Peter Bojsen Jakobsen, an economist at Sydbank A/S, said in a note. It “can also raise the probability that Denmark ends in a deflationary trap, and is also a testament to the fact that growth here and abroad is lower than the normal level.”

Denmark, where house prices have dropped about 20 percent since their 2007 peak, is the Scandinavian nation that has fared worst during the global financial crisis. Record household indebtedness has prompted consumers to shelve spending, which accounts for half the nation’s $355 billion economy. Gross domestic product didn’t grow in the first quarter and shrank 0.6 percent in the final three months of last year, the statistics office estimates.

“Low prices will continue,” Helge Pedersen, chief economist at Nordea Markets, a unit of Nordea Bank AB, said in a note. “The economic activity both in Denmark and in the international economy is at a modest level and that means that it’s hard for companies to pass price increases on to customers.”

The yield on Denmark’s inflation-linked bond due November 2023 rose to 0.325 percent, its highest in a week, according to composite Bloomberg bond trader prices.

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