High inflation in Austria “partially homemade”

High inflation in Austria “partially homemade”
In terms of inflation, Austria is among the leaders in the euro zone.
Image: Daniel Scharinger

core inflation

According to Statistics Austria, inflation hit Austria harder than many other European countries. That shouldn’t be the case, according to the liberal think tank Agenda Austria. According to the economists, state subsidy programs and aid payments have fueled currency depreciation – they criticize an “Austria premium” for inflation.

A look back: Until the middle of last year, Austria’s inflation was still below the EU average, since the end of 2022 it has been climbing steadily and overtaken neighboring countries such as Italy and Germany. The provisional peak in domestic inflation was reached in January 2023 at 11.6 percent. While energy prices have been falling since then, prices are rising in almost every other area. This is shown by the core inflation rate, which excludes energy and food: It was eight percent in March this year – Austria is at the top of the euro area here.

core inflation

According to Agenda Austria, the approximately seven billion euros in anti-inflation aid should play a major role in this. They support private consumption, which, according to the economists, has even increased as a result: in the first quarter of 2023, Austrians bought more than they did at the end of 2022, despite higher prices. According to economist Marcell Göttert, this is a momentous development: “People can buy the more expensive coffee or the more expensive schnitzel, that’s why there are also higher prices”. Because inflation – high demand with little supply on the market at the same time – is also encouraged.

According to Agenda Austria, a decline in private and public consumption would be the right thing to do right now – then inflation would fall. The sharp rise in prices in Austria is “partly home-made”, subsidies have been distributed with the watering can instead of paying them exclusively to the poorest. For the current year, the think tank is forecasting stagflation: economic stagnation with high inflation.

States should “keep your feet still”

For the economists of Agenda Austria, the only way out of inflation can be through the European Central Bank (ECB). You need to raise interest rates further. State price brakes would only combat the symptoms of inflation and would also distort the market. The states should “keep their feet still”: Wage settlements in the public sector as well as state expenditure and investments should be limited in order “not to pump even more money onto the market”. Garbage and sewer charges should be reduced or frozen to relieve citizens. In the future, however, anti-inflation aid should only be available for the needy.

The labor shortage plays a major role in inflation in the service sector: in no other EU member state are there so many vacancies in the service sector for so few employees as in Austria. According to a study by the EU Commission, 35 percent of service providers are restricted in their entrepreneurial activities as a result. In order to relieve the labor market, Agenda Austria recommends incentives for full-time work and an increase in the retirement age.

Spain is not a role model

In the fight against inflation, Spain has opted for a price brake and a temporary reduction in VAT on food. The inflation rate has fallen significantly there. However, calculations by Agenda Austria come to the conclusion that the Spaniards were not automatically better off as a result: their purchasing power in 2022 fell by 5.1 percent compared to 2019 – in Austria it was 2.2 percent.

On the issue of food prices, the think tank opposes reducing VAT. This would not be socially accurate, and it is also unclear to what extent the supermarkets would pass on the tax cut. After the end of the measure, food prices would also skyrocket, Agenda Austria warns.

Source: Nachrichten

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