Austria has faced a rocky few years when it comes to inflation and the economy. Unlike European neighbours, where inflation eased off somewhat following the shock of the energy crisis after Russia's invasion of Ukraine, high consumer costs lingered in Austria.
Now new figures show inflation is creeping up again, as war in the Middle East has sparked volatility among the global energy market.
According to a flash estimate by Statistics Austria, the inflation rate for April is expected to stand at an average of 3.3 percent, up from 3.2 percent in March.
"The geopolitical situation continues to have a noticeable impact on inflation," said Statistics Austria Director General Manuela Lenk.
But overall it's a mixed picture. We look at where residents are seeing rising costs and what to expect in the coming months.
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Energy cost changes
The unrest in the Middle East, following the US and Israel's attack on Iran at the end of February, is undoubtedly having a huge impact on the cost of fuel and heating oil for customers worldwide.
In Austria, this has resulted in energy prices clocking in at an estimated 10.7 percent higher in April than in the same month of the previous year, and up from the 6.2 percent rise in March.
High fuel prices account for a significant portion of the inflation figure, with drivers having to dig deeper into their wallets when filling up at the gas station.
However, the government's fuel cap introduced in April has had an effect by lowering prices for petrol and diesel by up to 10 cents per litre, and reducing inflation by up to 0.2 percentage points.
Although fuel prices were initially higher in April than in the previous month, they have now fallen back below that level.
"Diesel is now back below two euros per litre,” Wifo economist Josef Baumgartner told Der Standard.
In May the dampening effect is expected to subside. Although the coalition government has agreed to a one-month extension of the price cap, it now stands at a reduced rate. Over the course of the month, the relief will shrink from 10 cents per litre to 4.5 cents.
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Higher prices for flight tickets and holidays
The cost of services has continued to drive inflation – even more so than fuel prices.
In the catering sector, prices rose by more than five percent in March compared with the previous year, which also contributed more than half a percentage point to inflation.
Furthermore, the services sector is seeing significant price rises for air travel and package holidays by coach or plane.
"If someone books at short notice, the high fuel prices and kerosene surcharges are already included in the price,” says Baumgartner.
By March, the cost of such trips had already risen by around eight percent, with this year’s earlier Easter break exacerbating the price rise. According to Statistics Austria chief Lenk, this effect reversed in April.
"For the same reason, service prices – the main driver of inflation – only rose by 3.9 percent, much less strongly than in March, when an increase by 4.5 percent had been recorded," she said.
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When it comes to grocery shopping, prices for food, tobacco and alcohol rose by 2.7 percent in April compared to the same month last year, slightly more than the 2.4 percent increase in March.
According to Baumgartner, it will take a little longer for knock-on price rises to hit customers.
In the agricultural sector, for example, it will take until the next harvest before higher costs – such as more expensive fertilisers – are passed on.
Experience shows that for industrial products, it takes even longer. Nevertheless, this will be felt by customers in the mid-to-long term in the form of price hikes.
"Fuel is factored into transport costs everywhere," Baumgartner warned.
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How might inflation develop in Austria?
Residents in Austria are wondering what all this means for future trends.
"We need to think in terms of scenarios," said Baumgartner, referring to the uncertain course of the conflict in the Middle East.
Assuming that oil prices remain at their current levels for a few more weeks and then return to a lower level following peace in the Middle East, Baumgartner expects annual inflation in Austria of between 2.75 and 3 percent.
Should the conflict escalate again and the shortage on the oil market worsen, inflation would remain high for longer. "Much remains to be seen," said Baumgartner.
Most recently, the price of a barrel of North Sea Brent Crude has risen significantly again, climbing to the highest level since early 2022.
People in Austria may be wondering if the economic situation will deteriorate to that of 2022 levels following Russia's attack on Ukraine and the subsequent energy crisis. Over the course of the year, the inflation rate in Austria soared to 11 percent.
However, experts say Austria won't experience the same shock.
"A number of factors came together," said Baumgartner, referencing that time period. Gas prices had already been climbing the year before, followed by the outbreak of war, the shutdown of German nuclear power stations and a heatwave, meaning that gas even had to be used to generate electricity in the summer.
The result was that prices peaked at over €300 per megawatt hour (MWh) in 2022. Currently, they stand at €55 to €60 per MWh.
That's why the impact of the war in Iran has so far been less severe than that of the outbreak of war in Ukraine, Baumgartner said.
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