The outlook for a pickup in Danish inflation has deteriorated significantly in recent months as inflation has fallen sharply from 1.6 percent in September to 0.5 percent in March. Now, the probability that inflation will remain below one percent going into next year has increased. The reason is the upcoming energy settlement, which could end up with a large electricity tax cut.

Danish electricity taxes are the highest in Europe, currently making up about 40 percent of the total electricity price, which should be seen in relation to 0-20 percent in other EU countries. In addition, the taxation of electricity is significantly higher than on alternative heat sources such as natural gas and fuel, which makes it less attractive to change an existing oil burner for a more climate friendly heat pump running on electricity. That makes it politically attractive to cut electricity taxes in order to meet future energy political targets.

Published in FX Street, 19th April, 2018

https://www.fxstreet.com/analysis/cut-in-electricity-taxes-could-weigh-on-inflation-for-years-201804190523