Danish inflation fell to 0.8% year-on-year in January, down from 1.9% in December. The drop was mainly due to a cut in the electricity tax to the EU minimum. The tax fell from 90 øre per kWh (incl. VAT) to close to 1 øre per kWh (incl. VAT). The EU minimum is also listed as 0.8 øre per kWh.
Denmark’s EU-harmonised inflation rate was 0.6% in January. The eurozone rate was 2.3% in December.
Drivers Of The Inflation Drop
Goods prices were 1.3% lower than a year earlier in January, while service prices were 2.7% higher. Higher service prices kept overall inflation above zero, even after the electricity tax cut.
More tax changes are planned for July. Taxes on items such as coffee, chocolate, and sugar products are set to be removed. Inflation of around 1% this year is linked to a rise in purchasing power of about 2% for most people.
We are still seeing the effects of last year’s fiscal policy changes. The government’s electricity tax cut in early 2025 pushed inflation down to 0.8%. Inflation was then kept low by further tax cuts in July of that year. The latest data for January 2026 shows inflation remains subdued at 1.1%, well below the most recent Eurozone flash estimate of 2.5%.
As expected, this low inflation has helped boost consumer spending. Data from Statistics Denmark shows retail sales volumes rose 2.8% year-on-year in the final quarter of 2025. This supports the view that real wage growth is driving consumption. Traders may consider long positions in OMX Copenhagen 25 index futures, or call options on consumer discretionary stocks that could benefit from stronger purchasing power.
Implications For Rates And The Krone Peg
The key issue is the widening gap between Danish and Eurozone inflation. This difference can put pressure on the Danish krone’s peg to the euro. Danmarks Nationalbank is expected to put the currency peg first. With the DKK showing strength, the central bank has more room to adjust interest rates. In similar periods in the past, it has cut rates to weaken the currency.
If a rate cut is used to support the peg, it may make sense to position for lower short-term Danish interest rates. This could include buying Danish government bond futures or using interest rate swaps. Greater focus on the central bank’s policy may also raise volatility in EUR/DKK, which could make FX options useful in the coming weeks.
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