Add organization

Does the krone peg keep inflation low in Denmark?

How the peg links Danish and euro area prices.

Answered at: Checked at:

Short answer

The fixed exchange rate policy is meant to ensure low and stable prices in Denmark. The European Central Bank aims to keep inflation close to 2 % over the medium term, and by keeping the krone fixed at 746,038 kroner per 100 euro, Denmark aims for the same low and stable inflation. Denmark trades heavily with the euro area, so price differences quickly affect Danish competitiveness and unemployment. That pushes Danish prices back towards euro area levels over time.

Practical info

Why

  1. The euro area inflation target is close to 2 % over the medium term.
  2. Denmark trades heavily with the euro area.
  3. Trade with the euro area pulls Danish prices towards euro area levels.

Details

Denmark chose the fixed exchange rate policy in 1982, after a period of high unemployment, high inflation and large imbalances in the economy.

Tip

For the latest Danish inflation figure, look at the monthly consumer price index from Statistics Denmark.

What may differ

Danish inflation can differ from euro area inflation for a while, for example when energy or food prices move differently.

Common misconception

With a fixed exchange rate, Danish inflation is always the same as in the euro area.

What actually happens

The peg sets a frame for low inflation, and trade pulls prices towards euro area levels over time, not month by month.

People also ask

  • What is the inflation rate in Denmark now?
  • Why does Denmark change its interest rate when the ECB does?
  • What does Danmarks Nationalbank do?

Sources

This answer is for reference only. Payment rules, limits and fees change, so check the official sources or your bank before you pay.

Practical info
Help