The surprising rise in inflation in this country is giving economic researchers headaches. The fact that Germany and the eurozone are falling behind is particularly worrying, as WIFO boss Gabriel Felbermayr now explains. There are several levers that can be used to bring inflation back under control – Felbermayr also proposes measures that WIFO recently rejected.
Actually, the lower fuel prices should contribute to the fact that the biggest increase in inflation is already behind us, “but that is not the case”, Felbermayr said in the ORF “ZiB2” on Tuesday evening. “In any case, we have to assume that the forecast in March that we would have an inflation rate of seven percent this year calculated over the year, that we will have to revise it. Unfortunately, the journey continues upwards.”
The current price increase is also perceived as worrying because inflation had already risen sharply in the same month last year.
Austria’s competitiveness at risk
“We certainly now have to pull a lot of levers to close this relatively large and unfortunately also growing inflation gap with the eurozone,” said Felbermayr. Because every year in which prices rise more than in Germany or the average in the eurozone, Austria loses competitiveness.
Because the international price levels are decisive for this. “The fact that the distance to the eurozone is so great should give us food for thought.” Austria must “break the inflation dynamics”. The economist does not share the hope that only the European Central Bank would improve the situation in Austria.
When interest rates are high, the air becomes increasingly rarefied
The policy rate is set on the basis of the average value of the euro countries – which is currently about 2.5 percent below the Austrian level. “Even if the ECB continues to raise rates – as it stands now – it will not be enough to close this price gap between the Eurozone average and Austria.”
Felbermayr sees “no alternative at this point” to the forthcoming ECB rate hikes, which are likely to be hefty again – but the air in interest rates continues to thin, “as the side effects of such monetary policy become more and more noticeable” says the economic researcher Of course, economic activity needs to be slowed down a bit to get prices under control again, but there is also a risk that the economy will come to a standstill.
Missed opportunity with rent brake
Felbermayr advocates “thinking about the outcome with an open mind”, including interventions recently rejected by WIFO, such as VAT reductions. A rent brake, as discussed by the government but ultimately not decided due to coalition disagreements, “would have been an opportunity” and is still possible.
The WIFO boss also points out that in Austria 10 percent of prices are “administrated”, ie set by the public sector, such as waste taxes. “Does that really have to keep up with inflation?” Felbermayr suggested “solutions” “that allow for smaller price increases”.
Great price transparency as a solution?
If VAT is reduced, for example on basic foodstuffs, you must ensure that there is a return to the current level. In addition, such a measure is very expensive. Felbermayr suggests that one should consider in advance whether one can achieve an effect with high price transparency, at least for the 20 to 30 major foodstuffs, without incurring any costs.
Source: Krone
I am Ida Scott, a journalist and content author with a passion for uncovering the truth. I have been writing professionally for Today Times Live since 2020 and specialize in political news. My career began when I was just 17; I had already developed a knack for research and an eye for detail which made me stand out from my peers.
