Nordea’s Group Chief Economist Helge J. Pedersen highlights that Danish inflation fell sharply to 0.8% year-on-year in January, mainly due to a large cut in electricity tax and lower goods prices. Core inflation also declined, and EU-harmonized inflation is well below the Eurozone. Nordea expects further disinflation from upcoming tax cuts, supporting household purchasing power and private consumption.
Tax cuts drive disinflation and consumption
“Now the government’s reduction of electricity tax to the EU’s minimum rate of close to 1 øre per kWh (incl. VAT) from 90 øre before is really having an impact on inflation, which came out at just 0.8% in January. This was significantly lower than in December, where it was measured at 1.9%.”
“Core inflation, which cleanses inflation of price increases on energy and unprocessed food, also fell in January, namely to 1.9%. This was lower than in December, where the rate of increase was 2.3%.”
“The development confirms the tendency that inflation in Denmark is low in an international comparison. Denmark’s EU-harmonized inflation was thus 0.6% in January, while it was measured at 2.3% for the eurozone in December.”
“The fall in inflation in January is not a lone swallow, as it is due to the tax reduction on electricity to the EU’s minimum rate of 0.8 øre per kWh. This reduction is followed up in July, when taxes on coffee, chocolate, and sugar products, among others, are completely abolished. This can reduce inflation by approximately 0.8 percentage points for the whole of 2026 viewed as a whole compared to 2025, where it was 1.9%.”
“With an inflation rate around 1% this year, it means a boost in purchasing power of approximately 2% for most people this year. This will, together with a further increase in purchasing power as a result of tax reform and the newly introduced high-foodprice compensation to the most exposed families, all else being equal, give a strong boost to private consumption over the coming year.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/denmark-inflation-drop-boosts-purchasing-power-nordea-202602121552
