The Euro In Your Pocket
Inflation in Austria remains higher than the Eurozone average, the government having largely failed to treat it at its source
Servus!
After peaking at 11.2 percent in January, inflation in Austria had been heading in the right direction, dropping to 10.9 percent in February and 9.2 percent in March. In April, however, initial estimates indicate inflation rose once more, hitting 9.8 percent year-on-year. The blame, according to the monitoring and research body Statistik Austria, rests with the travel sector as well as the leisure and service industries. The cost of fuel and home heating oil, they say, is in fact lower now compared to one year ago.
At 9.8 percent, inflation in Austria remains stubbornly above the Eurozone average of 7 percent and higher than in other western European countries including France, Germany, and the Benelux states. Across the Eurozone, inflation is only higher in Estonia, Latvia, Lithuania, and Slovakia, nations heavily exposed to the economic effects of Russia’s invasion of Ukraine (as was Austria due to its dependence on Russian natural gas). Since the beginning of the inflationary crisis, the number of Austrians impacted by poverty has risen from around 160,000 to 201,000.
The issue is not the government’s lack of response to inflation. Whether it was the €150 energy certificate or the €500 climate and anti-inflationary bonus, the People’s Party (ÖVP)-Green coalition has shown itself more than willing to turn on the taps and put cash in people’s pockets in order to counteract inflation’s effects. The problem with this approach, with making a series of one-time payments, as the Austrian Trade Union Federation (ÖGB)’s chair Wolfgang Katzian said in a speech on May 1, is the words ‘one-time’ and ‘payment.’ When the money’s gone, and someone is once again faced with a choice between paying your rent and buying groceries, what are they supposed to do?
In instances where the ÖVP and Greens have been able to agree a common policy that actually intervenes in the market as to tackle inflation at its roots, the government has been quite successful. In December, an energy price cap was introduced which limits the price consumers pay for electricity to 10 cents per kilowatt hour for the first 2,900 KwH of energy a household uses per annum. The effect of this has been that, between March 2022 and March 2023, the price of electricity only increased by 0.3 percent.
No such cap for the price of gas was ever agreed or even discussed mind you, and in so many other sectors of the economy, the government has shied away from intervention or subvention, leaving the market to its own devices. The consequences of this are evident. A proposed temporary repeal of VAT on essential food and drink items was never implemented; since March 2022, the price of groceries has gone up by 14.5 percent on average. Coalition negotiations regarding a possible rent price cap also broke down earlier this year, meaning that on May 1, many tenants across Austria saw their monthly housing costs go up by 8.6 percent.
The government’s response to inflation has been both a manifestation and symptom of its inherent internal problems. The coalition is in the twilight of its years, has run out of momentum, and one-time payments have become a substitute for the hard work of bridging and overcoming policy differences. In the last week, cabinet ministers have begun to recognize the error of their ways, convening a summit with supermarket bosses and proposing the introduction of greater transparency and monitoring of prices. On energy costs, the government is looking at a windfall tax on companies that fail to pass on the benefits of falling wholesale costs to their customers. It might be too late, for the question is whether the coalition still has any juice left to see such measures through to fruition.
Bis bald!
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