Nordea’s Helge J. Pedersen notes that Danish inflation dropped sharply to 0.8% year-on-year in January, largely due to the government’s cut in electricity tax to the EU minimum. Core inflation also eased, and goods prices are now lower than a year ago. Further tax cuts on selected goods and low inflation are expected to lift purchasing power and support private consumption.

Tax cuts drive Danish inflation lower

"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%."

"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."

"As a result of the significant reduction in electricity tax, it is service prices that keep inflation in positive territory. Goods prices were thus 1.3% lower in January this year than last year, while service prices were 2.7% higher."

"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."

"The latest inflation figures are good news for Danish families, as they give rise to a further boost in purchasing power for most people. With an inflation rate around 1% this year, it means a boost in purchasing power of approximately 2% for most people this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)