The Tobacco Tax Directive Reform and Inflation: A Modest and Temporary Effect

This Policy Brief was written by Ángel López-Nicolás from Universidad Politécnica de Cartagena (UPCT) in Spain. The policy brief examines the effect of a proposed revision of the European Union (EU) Tobacco Tax Directive (TTD) on inflation in response to recent estimates from the European Commission. tobacco accounts for approximately 2.3% of the Harmonized Index of Consumption Prices (HICP) basket in the EU. López-Nicolás estimates that the TTD's effect would be small relative to baseline inflation in 2028, lying between 0.1 and 0.4 percentage points in most Member States. There would not be an inflationary effect in Belgium, Finland, France, Ireland, and the Netherlands. The findings also show that TTD's effect on inflation would diminish over time, contributing 0.13 percentage points to baseline inflation in 2028, 0.09 percentage points in 2029, and 0.08 percentage points in 2030. The cumulative effect from 2028 to 2030 across the EU would be 0.3 percentage points. The brief concludes with recommendations for decision makers to proceed with the TTD revision to reduce tobacco consumption without substantially impacting overall inflation.