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EXPLAINED: What is driving rising inflation in Austria and will the government act?

Amanda Previdelli
Amanda Previdelli - [email protected]
EXPLAINED: What is driving rising inflation in Austria and will the government act?
A Vienna coffee house. (Photo by Rick Govic on Unsplash)

Austria's April inflation rate reached 9.7 percent. What is driving it, and what will the government do to try and bring prices down?


In Austria, inflation has reached a persistently high level, with notable price increases observed in the leisure sector and services. 

This has led to a further rise in the cost of living, reaching 9.7 percent in April, as announced by Statistics Austria. "The increase in prices for flights, accommodation, and dining both within Austria and in popular vacation destinations abroad has accompanied the resumption of travel demand in the first summer season unaffected by the COVID-19 pandemic since 2019", said Tobias Thomas, the head of Statistik Austria.

The services sector, mainly catering, leisure activities, and travel, is expected to continue experiencing significant price inflation. Walter Pudschedl, an economist at Bank Austria, anticipates strong inflationary forces in the coming months due to increased costs being passed on to service prices, which counteracts the decline in energy prices, according to Der Standard

READ ALSO: Austria climbs to ‘fourth most expensive country’ in the eurozone

As a result, the decline in inflation in Austria has been slower compared to most other eurozone countries.

Despite some experts expecting a more significant decline, inflation has proven to be more persistent than initially anticipated. Bank Austria's forecast suggests that inflation, starting at an average of over ten percent in the current year, is expected to average 7.6 percent in 2023, assuming a substantial decrease in rates throughout the year. 

In comparison, inflation in the entire eurozone is projected to be around 5.5 percent this year.


What is the government doing?

To address the situation, the Austrian government plans to introduce a "food transparency report" to publish purchase prices for the food trade. The aim is to provide consumers with accessible and understandable information on food prices. 

However, it remains unclear how this measure will directly benefit the population or contribute to price reductions. It is also uncertain whether the report will focus on a basket of staple foods or provide comprehensive price transparency for specific items such as flour, milk, eggs, butter, cheese, fruit, and vegetables.

READ ALSO: How Austria wants energy firms to lower prices for customers

Furthermore, retailers will be required to disclose the amount of food donated to charitable organisations and the quantity wasted. 

In addition to the price calculator, the government aims to combat inflation through a strengthened federal competition authority, a freeze on public-sector fee increases, and lower electricity prices that utilities are expected to pass on to customers promptly, as The Local reported. 

However, economists have expressed mixed opinions on the government's package, with some considering it too small given the almost double-digit inflation rates, according to Gabriel Felbermayr, the head of Wifo.


Payments to fight child poverty amid rising prices

On Wednesday, May 17th, the Austrian federal government also announced that it would introduce more social payments to help families, particularly low-income ones, deal with resign cost of living. 

Social Minister Johannes Rauch (Greens) and Family Minister Susanne Raab (ÖVP) introduced a new set of measures in response to the high level of child poverty in Austria.

Under the new measures, individuals receiving unemployment benefits, unemployment assistance, social assistance, or compensatory allowances will be eligible for an additional €60 per child until the end of 2024. Single parents will also qualify for this support if their monthly gross income is below €2,000.

Furthermore, social assistance recipients without children will receive an extra €60 per month until the end of 2023.

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Minister Rauch expressed confidence in the impact of these measures, stating, "It makes a striking difference for families if they receive a fixed amount more for each child." Both ministers emphasise the importance of accurately and swiftly reaching the families in need.


Minister Raab also stressed the need for a targeted approach. The package of measures is estimated to involve around €500 million and is expected to specifically benefit 400,000 children and 200,000 adults, according to Minister Rauch.


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