Danish monetary policy is closely linked to ECB policy so the recent statement of Denmark’s central bank governor that he expects interest rates to remain around current negative levels in the next five to ten years is not without importance for the eurozone. Forward guidance by ECB implies that policy will only be adjusted when justified by economic conditions. The inability to be clearer in terms of time frame illustrates the complexities of inflation dynamics. Past wage increases will gradually filter through in a pick-up in inflation although low inflation, well-anchored inflation expectations and intense competition in certain sectors may very well moderate this transmission. It thus seems clear that the current policy will remain in place for a considerable time
The latest data on unemployment and job creation have surprised on the upside. They continue to be better than the long-term average. This strong labour market supports household confidence, which remains well above the long-term average, and retail sales, which did slightly better than expected. However, several numbers have come in below expectations and are below historical averages. This points towards a slowing economy, despite the satisfactory GDP data for the third quarter. Noteworthy in this respect are the two ISM indices. In addition, like in numerous other countries, industrial production is under pressure.
