The fact that inflation in Austria accelerated again in April is now ringing alarm bells among experts at the Austrian Institute for Economic Research (WIFO). Because: Austria has now become the fourth most expensive country in the eurozone. Prices are already 9.6 percent above the average in the eurozone.
Since 2003, the EU has been collecting price levels in its member states. At that time there was hardly any difference in the general price level between Germany and Austria. Little changed through 2006, but from 2007 – when the economy was booming – the gap quickly widened and rose to almost ten percent by 2020, according to WIFO inflation expert Josef Baumgartner.
The price difference with Germany remains large
Even if inflation in Austria was lower than in Germany for a while in 2021/2022 and there was even a slight convergence, the price difference with our neighboring country remains large. Price level comparisons are only available through 2021, the calculation is complicated and intertwined with the rate of inflation, but not quite identical, Baumgartner said.
“Danger that we are moving towards third place”
This has also resulted in Austria becoming the fourth most expensive country in the eurozone – while Germany, just like 20 years ago, is in eighth place. Austria started in seventh place at that time. “We are at risk of moving towards third place,” says WIFO expert Baumgartner. At the top are currently Luxembourg, Finland and Ireland.
Sharply increased prices compared to EU-27
Compared to the entire EU-27, the price level in Austria has also risen sharply. The price difference has almost doubled since 2003 from about eight to about 15 percent.
Food in particular is significantly more expensive
Baumgartner points out that the price difference between Austria and Germany is even greater if you take out individual product groups and don’t look at the entire shopping cart at once. For example, food was three to five percent cheaper in Germany around the time Austria joined the EU. In 2020, the difference was 20 percent – even though it is likely to decrease again in 2021 and 2022.
WIFO boss: ‘It can’t go on like this’
Because inflation in Austria is significantly worse than the average of other euro countries, where inflation has apparently already passed its peak, Wifo boss Gabriel Felbermayr is now calling for a change of course. “This cannot continue. The distance to the eurozone is one of the concerns,” he tweeted on Tuesday (tweet above). An active stabilization policy is needed, he demanded.
Felbermayr expects higher inflation for the full year and warns that the widening inflation differential with the eurozone is jeopardizing Austria’s competitive position. The large gap should give reason to think that Austria “has to break the inflation dynamics”, the WIFO boss said in the “ZiB 2” late on Tuesday evening.
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.
