Denmark: Selected Issues

IMF Staff Country Reports, June 26, 2023

Source details

The paper analyzes wage and inflation dynamics in Denmark.
High profit margins contributed to growth in the gross domestic product deflator.
Nominal wage growth in Denmark has so far been modest and outpaced by high inflation, putting real wage growth in negative territory.
Wage formation in Denmark has historically been partly backward looking, and economic slack has played a role.
Given realized high inflation and tightness in the labor market, wage pressures are expected to remain elevated in the near term.
Some of these wage pressures are expected to be passed on to core inflation, sustaining high inflation.
Conclusion: Determined policies to fight inflation are important.

High profit margins were a significant contributor to growth in the gross domestic product deflator.
Historical evidence suggests that the contribution from wages to price deflators will likely pick up.
Nominal wage growth has been modest relative to price increases, producing negative real wage growth to date.
Tight labor markets increase the risk of elevated wage pressures in the near term.
Elevated wage pressures are expected to feed into core inflation, sustaining high inflation.

Wage formation is characterized as partly backward looking.
Economic slack has historically influenced wage outcomes.
Current conditions: high inflation realized thus far + tight labor market => expectation of continued elevated wage pressures.

Determined policies to fight inflation are emphasized as important to counter sustained inflationary pressures arising from wage and profit margin dynamics.
Monitoring of wage formation mechanisms and labor market tightness is critical to anticipate pass-through to core inflation.

Denmark: Selected Issues; IMF Country Report No. 23/228; June 1, 2023
- Denmark: Selected Issues; IMF Country Report No. 23/228; June 1, 2023 (Markdown version)
- Denmark: Selected Issues; IMF Country Report No. 23/228; June 1, 2023 (PDF)