New forecast

Watch out! This is how high prices are set to rise

Wifo's forecast is sobering: Food prices are expected to rise by 3.8 percent.(Bild: Malena Brenek)

Prices in Austria are continuing to rise, in some cases twice as fast as the average for all EU countries. But according to the latest forecast by economic researchers at Wifo, this is not the end of the story - on the contrary ...

The experts expect food prices (including alcohol and tobacco) to rise by an annual average of 3.2 percent in the coming year. An increase of 3.8 percent is forecast for this year, according to a detailed analysis of the current Wifo economic forecast. According to the Wifo forecast, prices for energy (+4.8 percent) and services (+4.4 percent) will rise particularly sharply this year.

The services group includes restaurants and hotels, rents, personal services (hairdressing salons, nail salons) and public charges. Since June, the rise in food prices has once again contributed more to overall inflation, writes Wifo economist Josef Baumgartner in the "Research Brief" published on Friday.

Poor harvest and epidemic as price drivers
Baumgartner sees three main reasons: A smaller seasonal price drop was registered for fresh vegetables and fruit due to a poorer harvest. A low supply in the low-cost meat segment led to a sharp rise in meat prices due to lower imports from Hungary and Slovakia as a result of the foot-and-mouth epidemic. In addition, significant price increases were recorded due to crop failures for olives and olive oil (particularly in Spain) and for coffee, cocoa and oranges (juice concentrate) imported from overseas.

A low supply in the low-cost meat segment has led to a sharp rise in meat prices due to lower imports from Hungary and Slovakia as a result of foot-and-mouth disease.(Bild: privat)

As announced last Tuesday as part of the Wifo fall forecast, economic researchers expect an inflation rate in Austria of 3.5 percent in 2025 and 2.4 percent in 2026.

Internal SPÖ dispute over reduction in value added tax
The current comparatively high level of inflation has recently prompted politicians and economists to float numerous ideas - such as lowering the tax rate on food and rent. SPÖ leader and Vice-Chancellor Andreas Babler can imagine a VAT reduction for food, while his party colleague and Finance Minister Markus Marterbauer is skeptical. IHS boss Holger Bonin is also against a reduction, while Wifo boss Gabriel Felbermayr is in favor, financed by an increase in the standard tax rate.

There are several reasons for the sharp rise in energy prices
In the fourth quarter of 2024, inflation in Austria reached the European Central Bank's (ECB) inflation target of 2%. According to Wifo, the rise in inflation to 3.1% in the first half of 2025 is primarily due to the changes in the energy sector initiated by the former ÖVP-Green government at the beginning of the year. These include the expiry of the electricity price brake, the reinstatement of green electricity subsidies and flat rates, the return of energy taxes on electricity and gas to their original level and the significant increase in grid fees (for electricity and gas) as well as an increase in CO2 pricing for fuels, heating oil and natural gas.

According to the Wifo forecast, prices for energy will rise particularly sharply this year (+4.8%).(Bild: APA/BARBARA GINDL)

According to Wifo, these price increases will remain as base effects in the inflation calculation in 2025. From December 2025 to January 2026, the economic researchers therefore expect the contribution to inflation, particularly from the electricity sector, to fall by around 0.75 to 1 percentage point.

As part of its autumn forecast, Wifo increased the expected inflation rate for energy in the current year from 2.8% (June forecast) to 4.8%. This was due to the development of mineral oil prices and higher electricity labor prices, explained Wifo economist Baumgartner.