The Oesterreichische Nationalbank (OeNB) expects an inflation rate of 6.9 percent for this year in the light of rising core inflation. And HICP inflation will remain high in the medium term as well. 4.0 percent is expected for the coming year and then 3.1 percent for 2025, OeNB governor Robert Holzmann said in a broadcast on Wednesday based on the latest OeNB inflation forecast. The target of the European Central Bank (ECB) would be an inflation of 2 percent.
This year, inflationary pressures emanating from energy prices have eased considerably. However, inflation is increasingly determined by domestic price pressure, which is partly due to the sharp increase in wage costs in recent times.
Inflation still above long-term average
Therefore, according to the OeNB forecast, core inflation – that is inflation excluding energy and food – will rise by one percentage point to 6.1 percent in 2023. Annual core inflation will not fall again until 2024. But like HICP (Harmonized Index of Consumer Price) inflation, it will remain well above its long-term average until the end of the forecast period in 2025.
Labor costs are also driving up prices
Core inflation (excluding energy and food) was 5.1 percent last year and will rise to 6.1 percent this year, mainly due to sharp increases in wage costs. In 2024 and 2025, core inflation will fall to 4.3 percent and 3.1 percent respectively, but will remain well above the long-term average.
Austrian HICP inflation was exceptionally high in the first two months of 2023, also compared to the euro area, the National Bank writes. It reached 11 percent in February and has been in double digits since September 2022. The high inflation differential with the euro area average (8.5 percent) can be largely attributed to the contribution of services. However, the fall in inflation in February – from 11.6 percent in January – points to a trend break.
Consciously eat more expensive?
Given the current development of inflation, the OeNB wondered whether the pricing behavior of companies had fundamentally changed in times of high inflation. An analysis based on online retail price data suggests that price changes in the food sector were more common during the hyperinflation period (from January 2022) than before. Prices of food and non-alcoholic drinks changed up to three times more often. The average price increase, on the other hand, remained constant at around 10 percent.
The current high food inflation – food prices (including alcohol and tobacco) rose by more than 14 percent in February – is therefore due not so much to stronger price increases as to more frequent price increases. This indicates that the frequency of price changes is no longer largely constant, unlike previous periods when inflation was relatively subdued and stable. Rather, it is more strongly influenced by current economic developments.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
