Rate falls only slowly

A long way to the inflation target of 2 percent

Inflation remains high in Austria - according to a quick estimate by Statistics Austria, it amounted to 3.3 percent in May. Although the trend of falling inflation is thus continuing slowly, the target of 2 percent is only likely to be realistic in around a year and a half.

"The current inflation rate of 3.3 percent is within the expected range," says Wifo economist Josef Baumgartner. The cost of household energy in particular is easing, as are food and consumer goods. According to Baumgartner, this is due to cheaper raw materials on the one hand and a weaker industry overall on the other.

Supply bottlenecks eliminated
Unlike in previous years, companies no longer have to contend with shortages due to supply bottlenecks. Due to falling energy prices, housing is also no longer such an issue, even though rents have risen. The situation is different when it comes to the cost of gas and electricity. Petrol in particular has become more expensive again in recent weeks. As fuel prices already fell significantly a year ago, this is no longer reflected so strongly in annual inflation ("base effects").

However, gastronomy and tourism remain price drivers. "We are seeing increases in the service sector in particular. This is because these sectors are very labor-intensive. The increased wage costs are having an impact here," says Baumgartner. There is a difference here between very rural and very urban regions. While demand is very good in tourist areas in particular, landlords in rural areas with low tourism levels sometimes find it difficult to charge higher prices.

One of the highest inflation rates in Europe
Baumgartner expects inflation to fall further in the coming months. "At the end of the year, there should be a two before the decimal point," says the economist. However, there is still a long way to go before the central bank target of 2.0 percent is reached. According to Wifo, this is unlikely to happen before the end of 2025 or early 2026 at the earliest.

In other EU countries, the target has already been reached or is even being undercut. The lowest annual rates are estimated for Latvia (0.2 percent), Finland (0.5 percent) and Italy and Lithuania (0.8 percent). Inflation is highest in Belgium (4.9 percent), Croatia (4.3 percent), Portugal (3.9 percent) and Spain (3.8 percent), followed by Austria. According to estimates, the average core rate for the eurozone is likely to rise to 2.9 percent in May, compared to 2.7 percent in April.