Inflation in Denmark

A short history of inflation in Denmark

The Inflation Years (1973 to 1982)

Danish inflation ran into the mid-teens after the oil shocks, in an economy that imported its energy and indexed wages to prices, so each shock fed through to pay and back into prices again. Repeated devaluations of the krone through the 1970s bought competitiveness briefly and cost credibility.

The Fixed Exchange Rate (1982 onwards)

In 1982 Denmark abandoned devaluation as a tool and fixed the krone, first to the Deutsche Mark and later to the euro, and suspended wage indexation. That decision has governed Danish monetary policy ever since: the central bank sets interest rates to hold the peg rather than to target inflation, and Danish inflation consequently tracks the euro area's closely. Denmark voted against adopting the euro itself in 2000.

Post-Covid Inflation (2021 to 2023)

In Denmark, prices rose fastest in October 2022, at 11.4%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.