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Hidden inflation: Why Austrians continue to have to pay!
Austria's inflation remains above the ECB's target, with projections for decline and impacts on wages and living costs highlighted.
Hidden inflation: Why Austrians continue to have to pay!
The economic situation in Austria has changed significantly in recent years. The double-digit inflation rates that burdened the population in 2022 and 2023 now appear to be over. However, inflation remains above the European Central Bank's (ECB) inflation target of two percent. Regular price increases cause dissatisfaction among citizens, especially when they feel like they have been deceived the standard reported.
The effects of inflation are noticeable. Despite forecasts that inflation in Austria will fall to the ECB target of two percent in mid-2026, the country remains in the group of countries with the highest inflation rates in the euro area. According to the Wifo economic research institute, inflation is expected to fall from 7.8 percent in 2023 to 3.4 percent in 2024 and further to 2.5 percent in 2025 courier.
Causes of inflation
One of the main reasons for the persistently high inflation is wage developments in Austria. While collective wage increases in the euro area are more restrained, they contribute to the higher inflation rate in this country. For 2024 and 2025, the pass-through of wage increases to service prices is expected to be an important driver of inflation. Price indexation for rents, mobile phone tariffs and bank fees further increase inflation.
Wifo forecasts a real wage increase of 4.2 percent for 2024, which should compensate for the real wage loss in the pandemic years 2020 to 2022. At the same time, the shortage of skilled workers strengthens the position of employees in wage negotiations, which can lead to higher wages. However, real wage growth is expected to slow from 2025 to 2028 as the gap between rolling inflation and expected inflation narrows, which could increase pressure on wages.
Prospects and challenges
Unit labor cost developments predict a further increase in the coming years, with an increase of 8.1 percent forecast for 2024 and a percentage increase for 2025. It is also assumed that real wages per capita will grow faster than productivity in the forecast period from 2024 to 2028. This could give people in Austria some breathing space during the economic challenges.
Overall, the economic situation remains complex. While some positive developments in wage development are to be expected, the issue of inflation remains a key challenge for the coming years.