Governor Holzman: “We are capable of catching inflation again”

The economists at the Oesterreichische Nationalbank (OeNB) are assuming this, although there is a strong headwind with the war in Ukraine and high inflation.

The focus of yesterday’s presentation of the central bank’s economic forecast was on the high level of inflation, which is likely to continue to rise (see chart). This increase in price was originally imported, mainly due to the sharp rise in energy prices. However, their influence will decrease from the summer. In his role as a member of the Governing Council, Governor Robert Holzmann said: “We are capable of catching inflation.”

“No wage-price spiral”

However, currency devaluation has long spread to other sectors of the economy. The so-called core inflation, i.e. the inflation rate excluding energy and food, has already risen to over four percent. However, neither Governor Robert Holzmann nor Chief Economist Birgit Niessner see any signs of a wage-price spiral.

However, the wage negotiations in autumn are likely to be challenging this year. Real wages per capita will fall by 2.5 percent this year, a decline last seen in the 1950s.

As hours worked increase by about 4 percent, total household incomes will stagnate. Nevertheless, private consumption will increase significantly because Austrians will significantly reduce their savings rate after the corona-related consumption waiver. The volume of “forced savings” estimated Gerhard Fenz, head of the economics department at the National Bank, with around 20 billion euros, which would now flow back into consumption.

The National Bank’s forecast is two “essential assumptions” perish. The economists assume that the “acts of war” in Ukraine will end this year and the Covid pandemic “only as a risk” is to be evaluated, i.e. there are no more restrictions.

Should that not be the case and the war escalate further and last well into next year, including a halt to oil and gas supplies from Russia, then the situation would become far more dire. Austria’s economy would then shrink by 0.6 percent this year and by 1.4 percent next year. (hn)