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ANALYSIS: Can Austria’s government get inflation under control?

While other EU countries have seen inflation rates decreasing, Austria's remains high. So what is the government doing to control it and why is it failing?

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As inflation rises, energy and food prices have soared in Austria.(Photo: Soydul Uddin/Pixabay)

With inflation of 10.9 percent last month, Austria ranks at the top of all Western European countries. The average inflation rate in the 27 EU member states was 9.9 percent in February 2023

Experts and politicians, in general, agree on the causes for this worrisome development, blaming rising energy prices on the European market due to the war in Ukraine, wide-ranging sanctions imposed against Russia, and the aftermath of the Covid-19 pandemic. 

READ ALSO: High inflation: What’s keeping prices high in Austria?

What they disagree about, however, is how to fight and fix the persistent inflation problem in the long run. 

While economic experts and relevant social partners like Austria’s Chamber of Labour openly support price regulation and market intervention, the ÖVP-Green coalition government remains hesitant, emphasising that inflation is expected to drop in the coming months anyway. 

Experts warn against Austria’s ‘scattergun approach’

Over the past few months, the federal and regional governments have decided to support the Austrians with bonus payments. In March 2022, a €2 billion relief package was unveiled to fight rising costs of living. 

It included an energy bonus of €150 per household, a climate bonus of €500, an increased family allowance, a bonus for retired citizens as well as an electricity price brake between €400 and €800. In Vienna, about 600,000 households received an additional energy bonus of €200. 

READ ALSO: Tax cuts and bonus payments: Austria’s financial measures that will benefit people this year

Peter Hanke, executive councillor of finance in Vienna, has recently announced that 90 percent of the households in the capital are going to benefit from another €200 bonus as of April 11th this year – just before citizens are to expect another rent increase of about 8.6 percent, according to the Austrian Chamber of Labour.

Experts speak of a “scattergun approach” of distributing bonus payments in the middle of a crisis that is also affecting the middle class. Some feel concerned that this way of dealing with the issue may prove less effective and that the country could eventually get trapped in a vicious circle.   

One of these critics is Kurt Bayer, former Board Director at the World Bank. In a commentary published in the newspaper Der Standard, Bayer stressed that compensating enterprises and households with financial aid would be costly and inefficient as the problem itself would not be solved. 

READ ALSO: Austria to drop all Covid restrictions by the end of June

With such a compensation policy, he sees strong parallels to the strategy applied during four lockdowns in the Covid pandemic. Austria’s Covid management, especially its testing scheme, has cost more than €4 billion while health experts confirm that Austria hasn’t gotten through the pandemic any better than other EU countries that spent less money.

Bayer insists that inflation compensation has only increased consumer demand so far and will not make prices drop again soon. He also adds that certain corporate subsidies are climate damaging. 

The Klimabonus was also be sent via €500 voucher. (The Local)

Austria’s government against the ‘Iberian model’

Bayer prefers what has been called the “Iberian model”, a price reduction and price control mechanism successfully applied in Spain and Portugal. Energy specialists from the Austrian Energy Agency conducted an “Empirical Analysis of the Iberian Price Cap” in December 2022. Austria’s Chamber of Labour now demands a state intervention strategy by implementing energy caps across the European Union. It refers to the findings of two research studies claiming that Austria’s inflation could be reduced by at least a quarter. 

READ ALSO: How could Austria’s new electricity price brake benefit you?

The ÖVP-Green government coalition refuses state intervention and opposes energy caps, claiming that this would only increase energy consumption. 

The government remains less optimistic about other control mechanisms, as well. Austrian Labour Minister Martin Kocher (ÖVP), for instance, emphasised the importance of maintaining market competition. He says a “low price guarantee” on groceries, like in France, could cause supply shortages. 

Inflation crisis has strongest impact on elections

With the ongoing inflation crisis in Austria, the number of angry citizens who feel left alone by the government and choose protest votes is growing. In the January elections in Lower Austria, the right-wing FPÖ came out as a winner with almost 10 percent of votes gained compared to five years ago. The nationalist party is now a junior partner of the ruling ÖVP in Lower Austria. 

READ ALSO: Why it really matters who the new governor of Lower Austria will be

In Carinthia, where elections took place at the beginning of this month, the ruling SPÖ lost 9 percent of their voters. This comes as a surprise because, in times of inflation and financial instability, the Social Democrats historically gained supporters. However, internal struggles in the SPÖ have damaged the party’s popularity and driven voters to the FPÖ, a traditional right-wing protest party. 

Analysts agree that the key motivation in the elections was the high inflation in Austria. People with lower income and those who can hardly make ends meet tend to vote for SPÖ and FPÖ, according to a SORA poll

Other reasons for so-called “protest voters” were dissatisfaction with the health system and anti-Covid measures (including a mandatory Corona vaccination law that was scrapped after waves of protest last year) and, to a lesser degree, migration and asylum policies. 

READ ALSO: Why is support for Austria’s far-right FPÖ rising?

On April 23rd, federal elections will be held in Salzburg. A recent poll predicts moderate losses for the ÖVP and an increase for the FPÖ compared to the Social Democrats. 

Surprisingly, the survey doesn’t rule out that the Communist Party could enter parliament in Salzburg. This would be another clear sign showing the loss of confidence in a government still struggling to control inflation in Austria.


Stefan Haderer is the author of the book “Perspektivenwechsel: Beobachtungen im Jahrzehnt des Wandels 2011-2022” (KPD 2023), a compilation of his political analyses published in the Austrian daily “Wiener Zeitung”.

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Is inflation finally subsiding in Austria?

Statistics Austria released a preliminary estimate showing that the inflation rate in May was 8.8 per cent, a decrease from the previous month's rate of 9.7 per cent. So are prices finally going to go down?

Is inflation finally subsiding in Austria?

Tobias Thomas, the Director General of Statistics Austria, attributes this decline to lower fuel prices and less price pressure on food items.

“In May 2023, inflation in Austria has clearly lost momentum,” he said. “According to a first estimate, inflation is expected to be at 8.8 percent after 9.7 percent in April. This is the lowest value since June 2022. The main reason for this decline is the uninterrupted downward trend in fuel prices. The upward trend in food prices continues to weaken.”

A similar trend was observed in Germany, where the inflation rate for goods and services decreased from 7.2 percent in April to 6.1 percent in May. According to Eurostat, the inflation for the eurozone is estimated to be at 6.1 percent – down from the 7 percent registered in April. 

READ ALSO: What will become more expensive in Austria in June?

However, despite the decline in May, inflation continues to burden many individuals significantly. 

According to calculations by the Momentum Institute, an institute affiliated with the trade union, a single-person household needs to spend an average of €405 more per month this year to maintain their standard of living compared to 2021. The highest cost increases are observed in housing and energy, amounting to an additional €117 per month, followed by transport with €81, and food with an additional cost of €71 per month. 

The challenge lies in the fact that the average increase in income of €260 does not fully offset these additional costs, resulting in a shortfall of €145 per month to maintain the standard of living experienced in 2021.

Final report by mid-June

From a large set of price data, Statistics Austria initially calculates the flash inflation estimate at the beginning of the following month. This estimate includes around 80 to 90 per cent of the prices required for the calculation. Typically, the inflation rate is accurately calculated with a deviation of only 0.1 percentage points. 

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

The final inflation data, including inflation rates for specific product groups, are released later in the month. In the case of May 2023, this will occur on June 16th.

Statistics Austria experts previously had an indication that a wave of inflation was approaching the country due to indices for import or producer prices, which provide insights a few months ahead of the CPI data. 

However, the current indications are different, as producer prices only rose by 4.6 per cent in April. This suggests that the cost of living pressure on consumers will likely ease in the future.