Austria announces electricity price cap from autumn as prices soar

The Austrian government said it would work on measures to encourage energy saving while instituting a price brake.

Electricity prices are set to rise in Switzerland. Photo by Anthony Indraus on Unsplash
Electricity prices are being capped in Austria. Photo by Anthony Indraus on Unsplash

Austria’s federal government agreed to impose an electricity price cap after the Council of Ministers meeting on Wednesday.

The aim is to “support the Austrian population to ensure unaffordable energy supply for a certain basic need”, according to a statement released after the meeting. The government didn’t give details on the price cap but said that the conditions for the price cap would be developed by the end of August.

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A task force led by Austrian Institute of Economic Research head Gabriel Felbermayr and Energy Minister Leonore Gewessler (Greens), Economy minister Martin Kocher (ÖVP), and Finance Minister Magnus Brunner (ÖVP) should have nationwide measures ready by autumn.

“The aim of the measures is to secure a quote per household at affordable prices in the least bureaucratic way possible”. The government said it would take into account the social impact of the inflation-dumping measures and focus on persons particularly affected by “energy poverty”.

It would also bring uniform prices nationwide at “more favourable price at pre-war levels”.

The price cap will be initially for electricity but could be extended to other energy sources, and the task force will evaluate the need for it.

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Additionally, the government will look into possible support measures for particularly energy-intensive companies.

Measures to cushion high inflation

Austria is seeing high inflation rates, with prices soaring to a 50-year record, as The Local reported. In particular, high energy prices bring more uncertainty to residents of the alpine country.

The federal government has taken some measures announced as part of relief packages with one-off payments and changes in the tax system.

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One of the main payouts is the “anti-inflation” payment to be paid together with a “climate bonus” sum to all adults in Austria, totalling €500 already in autumn.

Still, as consumer prices are expected to continue rising in the coming months, the government stated it is “already working intensively on the possibility of further mitigating measures”.

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Why (and when) double-digit inflation is set to hit Austria

Financial experts in Austria do not expect inflation to slow down any time soon. In fact, they are predicting the opposite. Here's what you need to know.

Why (and when) double-digit inflation is set to hit Austria

In a recent interview, inflation expert Josef Baumgartner forecast that inflation in Austria will hit double-digits in the coming months.

Baumgartner, from the Austrian Institute of Economic Research (WIFO), told Kurier that residents in Austria should prepare themselves for an ongoing increase in inflation due to rising energy prices.

Baumgartner said: “We’re a long way from the all-clear. According to the announcements by Wien Energie and EVN, I expect an inflation rate of more than ten percent by September, and no later than April 2023.”

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The latest estimate by Statistics Austria shows inflation was already at 9.2 percent in July, as reported by The Local.

This is in stark contrast to predictions made by the European Central Bank earlier this year when it was expected that inflation would fall in the second half of 2022.

How expensive could energy in Austria become?

WIFO expert Baumgartner based his forecast for Austria on wholesale electricity prices, which are currently 247 percent higher than in August 2021, reports ORF

Baumgartner said: “If the energy suppliers pass this on one-to-one, there is a risk of an enormous price increase.”

Additionally, Baumgartner expects prices for electricity and gas to go up by a further 50 percent in September, and was not optimistic that the planned nationwide electricity price cap will be enough to dampen energy prices.

READ MORE: Cost of living: How to save money on energy bills in Austria

He added that federal government intervention must go further to tackle gas and district heating prices.

On August 3rd, EVN and Wien Energie – both part of the Energieallianz Austria (EAA) group – announced they will be increasing energy prices from September.

EVN (which is mostly state-owned) blamed the move on price increases on the international wholesale markets.

According to ORF, Baumgartner believes these planned price increases will further impact the customer price index and push up inflation across Austria, even if the tariff changes only apply to customers in the east of the country.