Cash handouts to Danes could worsen inflation, central banker warns

div classBodysc17zpet90 cdBBJodivpCOPENHAGEN Reuters – Compensating lowincome and elderly Danes with cash handouts to ease the impact of higher consumer prices could worsen inflationary pressure on an economy already running on all cylinders, the central bank warned on Thursday.p

pDenmark has proposed handouts to soften the blow from rising inflation, exacerbated by soaring energy prices in the wake of Russias invasion of Ukraine.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pLawmakers had already agreed in February to give taxfree handouts worth 3,750 crowns 534 to around 320,000 households to help with heating. p

pThe Social Democratic government, led by Prime Minister Mette Frederiksen, was elected in 2019 following two decades of economic reform that had cut many welfare services. p

pBut government efforts to alleviate pressure on household finances could end up causing even more inflation, according to an assistant governor at Denmarks central bank, Signe Krogstrup.p

p“If compensation schemes are adopted that arent matched by public savings or higher taxes, it will intensify the pressure on the economy and thus push further wage increases and inflation,” Krogstrup said in a column published on Thursday by newspaper Berlingske. p

pThe government, currently in negotiations with parliament, has suggested giving elderly people with low incomes an additional taxfree handout of 5,000 crowns as well as increasing transport allowances for those with longer commutes by car. p

p“Its not desirable to throw more wood on the fire,” Krogstrup said, adding that if several countries lowered taxes on energy, it could cause world market prices to rise further.p

p“Hence, a reduction in energy taxes will ultimately not benefit consumers, but instead act as a transfer to the energyproducing countries,” Krogstrup said. p

pThe central bank predicts the Danish economy will grow 1.6 this year in a medium scenario where inflation rises to as high as 4.5. p

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pp Reporting by Nikolaj Skydsgaard Editing by Nick Macfiep

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