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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Demand for labour remains high in Denmark with employment up for 14th straight month

Denmark’s labour market remains on a trend which has seen the number of people in paid employment in the country grow month-on-month since early 2021.

Demand for labour remains high in Denmark with employment up for 14th straight month

New data from national agency Statistics Denmark shows that the number of people in paid employment increased by 16,000 between February and March this year and now stands at 2,947,000. The data is corrected for variations caused by work that is season-dependent.

The new figures represent the 14th consecutive month in which the number of people working in Denmark has increased.

Additionally, more people are in work now compared to just before the Covid-19 pandemic hit, with a knock-on effect on the economy and jobs.

145,000 more people are hired now than just before the Covid-19 crisis, senior economist with Sydbank, Mathias Dollerup Sproegel, told news wire Ritzau.

“The labour market continues to be a ray of sunshine in the Danish economy,” Sproegel said.

“Aside from record-high employment, unemployment is also close to the record-low from before 2008. That tells us that the labour force has been strengthen somewhat in recent years,” he said.

“That is due to earlier political reforms and an active effort to bring all available hands in the Danish economy into play,” he said.

READ ALSO: How Danish work permit rules are keeping out skilled foreigners living in Sweden

Another analyst, senior economist Lars Olsen with Danske Bank, said the figures evidenced that it is still possible to find staff to fill the many available positions on the labour market.

“This suggests that there are still reserves to draw on, probably among students and people who have not previously had a strong connection to the labour market,” he said in a written comment.

“It would also seem to help that the age of the state pension has been put up again this year, so nobody will reach pension age during the first half of this year,” he said.

READ ALSO: Could Denmark delay plan to increase retirement age?

Hotels and restaurants are among sectors which saw the strongest growth in employment in March, with over 5,500 new hires giving an increase of 4.6 percent.

Culture and leisure also saw notable growth at 3.3 percent or 1,900 people.