Why high inflation is a headache for Denmark’s government

Denmark’s government faces a difficult dilemma in the face of spiralling food and fuel prices.

grocery shopping in denmark
Voters could punish the Danish government at next year's general election if it fails to respond effectively to ongoing inflation. Photo: Maria Albrechtsen Mortensen/Ritzau Scanpix

The government faces a thorny problem as it decides how to respond to the ongoing inflation, according to an analyst.

“To respond passively to inflation with a general election coming relatively soon would be very difficult,” Erik Holstein, commentator with Danish political media Altinget, told news wire Ritzau.

Danish inflation hit a near four-decade high in April, as energy and food prices soared, official figures showed Tuesday.

READ ALSO: Food and energy prices rocket as Danish inflation hits 40-year high

Denmark’s consumer price index (CPI), rose 6.7 percent in April, compared to a year earlier, the highest rate since June 1984, according to Statistics Denmark.

Prices of goods have meanwhile risen by 10.3 percent over the past year, a rate last matched in November 1982, the official statistics keeper said.

“Within goods, price increases for electricity, food, fuel and gas are very much evident in April 2022,” the agency said in a statement.

Excluding energy and unprocessed foodstuffs, Danish consumer prices rose 3.6 percent, which is still up from 3.2 percent in March.

While prices are increasing at breakneck speeds, economists have warned against the government and parliament sending one-off cash benefits to sectors of the population affected by the high prices.

“This is a devil of a problem for the government because there is no good solution to it. And politically, remaining passive would go against the distribution politics the government stand for,” Holstein said.

The government has earlier proposed paying a one-off sum of 5,000 kroner to 290,000 senior citizens who receive a social benefit known as ældrecheck (elderly cheque).

But economists have warned that such a measure could make the inflation problem worse.

READ ALSO: Danish central bank director says cash help for high prices will cause inflation

“The government could certainly explain to voters (why) it is not responding to inflation with economic help but there would be a lot of dissatisfaction amongst those groups,” Holstein said.

“Economists are right that it could potentially make the problem worse,” he said.

Withdrawing the proposal to send money to senior citizens could already cost votes for the government, he added.

“And they have to think about the upcoming election,” he said. Denmark is scheduled to vote in a general election by June 2023.

“The high inflation is not the government’s fault but it’s the government that will be given responsibility if it fails to solve the problems of individual voters,” he said.

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Danish economists say abolition of Great Prayer Day is ‘not necessary’

Leading economists in Denmark say that scrapping the Great Prayer Day holiday is not a necessary measure and that the potential economic benefits for the state are dubious.

Danish economists say abolition of Great Prayer Day is ‘not necessary’

Three economists writing in a column in political media Altinget said there was “nothing necessary” about the plan to scrap Great prayer Day.

“Is it better, then, to cancel the government’s planned tax cuts, to cut public spending or to use the opposition’s alternative proposal?”, write the three economists: Ulrik Beck, senior economist with thinktank Kraka; and Michael Svarer and Hans Jørgen Whitta-Jacobsen, professors in economics at Aarhus and Aalborg universities respectively and both former members of the Danish Economic Councils.

The three economists go on to write that the answer to the question comes down to preferences and priorities.

They state that an opposition plan to raise an annual three billion kroner, the amount the government says the Finance Ministry will raise by scrapping Great Prayer Day, is “a fraction better”.

The three governing parties – the Social Democrats, Liberals (Venstre) and Moderates – want to abolish springtime public holiday Great Prayer Day in a move they say will enable increased defence spending to meet Nato targets by 2030, three years ahead of the current schedule. A bill was tabled by the government earlier in January.

The policy has met with criticism from trade unionsthe church and opposition parties, while the military itself has also distanced itself from the plan.


In an alternative proposal, the nine opposition parties say they can raise the money by diverting 1.25 billion kroner from the public investment budget, 1 billion kroner from a winter assistance programme which the parties say was over-financed, and savings on business support spending of 0.75 billion kroner.

The three economists write that the opposition proposal could hold back the welfare system in future, however. Additionally, a reduction in business support could harm companies.

Regarding the economic effect of scrapping Great Prayer Day, they state that although this has a potential monetary benefit, it is uncertain.

That is because people working in Denmark could choose to adjust their working hours by taking less overtime or “hours of interest” (interessetimer), they state.

In addition, collective bargaining agreements between trade unions and employers could eventually provide for an extra day off in response to emerging demand for this.

That would negate the effect of scrapping the holiday, the experts said.

READ ALSO: What is a Danish collective bargaining agreement?