What particularly fuels inflation in Austria «kleinezeitung.at
Above all, the expensive natural gas is causing the price level to rise – tightening of monetary policy could slow down the economic recovery – the labor market has survived the fourth lockdown well.
8:54 am Feb 09, 2022
Inflation in Austria continues to be largely driven by the high price of raw materials, above all the price of natural gas. Half of the increase in the price level is caused by the upturn in the global economy and global supply and delivery shortages, says the economic research institute (Wifo) in its current economic report. The domestic labor market survived the fourth lockdown largely unscathed, not least thanks to short-time work.
“The contribution of adverse supply shocks to inflation increased successively in 2021”, explains the author of the current Wifo economic report, Stefan Schiman. “This poses difficult decisions for central banks, as tightening monetary policy puts additional strain on the real economy.”
According to the flash estimate, inflation according to the HICP rose to 5.1 percent in January 2022 in the euro area and to 4.6 percent in Austria (or 5.1 percent according to the CPI). According to Wifo, 30 percent of the increase in prices is due to supply and supply bottlenecks, 20 percent positive demand impetus from the upswing in the global economy. A tightening of monetary policy is more obvious in the case of demand-side inflation than in the case of supply-side inflation, since the latter also has negative effects on the real economy. In the USA, the share of demand-driven price increases in overall inflation has long been as high as it was recently in the euro area. Therefore, the Federal Reserve initiates the turnaround in interest rates earlier than the ECB. As early as March, the Fed will end bond purchases and raise interest rates. Further interest rate increases and bond sales will follow in the further course of 2022.
Labor shortage affects business activity
In the fourth quarter of 2021 – as in the final quarter of 2020 – Austria was one of the euro countries with the sharpest decline in GDP. Economic output also declined in Germany. In addition to stricter lockdowns as a result of the low vaccination rates, more severe delivery problems were also responsible for this in both countries. Nevertheless, the Austrian labor market survived the fourth lockdown well. According to Wifo, this is due to short-time work, which is why many foreign seasonal workers did not even come to Austria. In many sectors, the labor shortage is already affecting business activity.