Denmark’s central bank has warned of the impact of large wage rises on inflation, urging the government to prepare to tighten fiscal policy.
“There is no room to increase the pressure in the Danish economy. It may be necessary to tighten fiscal policy if the risk of an independent Danish wage-price spiral rises further,” Danmarks Nationalbank’s Governor Christian Kettel Thomsen said in a statement about the bank’s new analysis on the Danish economy.
Despite efforts to reduce inflation in both Denmark and the eurozone, Thomsen predicted strong wage rise in both, according to the Xinhua news agency.
“Sustained wage increases of this size are not compatible with low and stable inflation in the long term,” the Governor added.
Notwithstanding warnings about potential threats, the research predicts that inflation will decline to 4% in 2023, from 8.5 percent in 2022.
“The fall is primarily attributed to falling energy prices,” says the analysis.
Furthermore, the analysis estimated that the country’s gross domestic product will expand by 0.9% in 2023 and 1.2% in 2024, indicating a bright outlook.