The main drivers remained the price increases for energy and fuel. Compared to the previous month, the domestic price level increased by 1.1 percent, according to the preliminary calculation.
According to the estimate, the harmonized index of consumer prices (HICP) for Austria, which is used for euro zone comparisons, was 8.1 percent higher than in the same month last year and one percent higher than in April. Statistics Austria will report in detail on inflation in Austria on June 17th.
ECB is targeting a turnaround in interest rates
For months, sharply increased energy prices have been driving up inflation in the euro area. This trend was exacerbated by the Russian attack on Ukraine. After much hesitation, the ECB is now aiming for a turnaround in interest rates: The central bank has announced that it will end the currently negative interest rate on deposits of minus 0.5 percent with two rate hikes in July and September. Rising inflation can be combated with higher interest rates. Other central banks, such as the US Fed and the Bank of England, have already raised their key interest rates.
However, in an interview published on Monday, ECB chief economist Philip R. Lane dampened hopes of an even faster end to negative interest rates in the euro area. “What we are currently seeing is that it is appropriate to phase out negative interest rates by the end of the third quarter and that the process should be gradual,” Lane told Spanish newspaper Cinco Dias. Referring to the economic recovery slowed down by the Ukraine war, Lane made it clear: “The exit from negative interest rates in September does not mean that interest rates will be high – they will still be relatively supportive.”
Inflation: The situation is “absolutely” serious
WIFO increased the inflation forecast for 2022 from 5.8 to 6.5 percent – the situation is “absolutely” serious, said WIFO boss Gabriel Felbermayr on Sunday in the ORF “press hour”. The domestic economy is not prepared for such high inflation rates. Due to the high inflation, it is now “urgent” to think about adjusting social benefits, even during the year, otherwise the system is “unsustainable”. In general, the WIFO boss spoke out in favor of indexing social benefits such as family allowance, minimum income and care allowance and automatically adjusting them to inflation.
He prefers a permanent balance, if that is not politically possible, then at least for the duration of the crisis. We will not return to low inflation rates anytime soon. An adequate price index must be considered, because people on the poverty line would consume differently than those with enough money. According to the economist, WIFO is skeptical about a reduction in VAT, because that would be expensive and would only postpone inflation – at some point the tax would have to be raised again. Higher transfers and a doubling of the existing packages would be better.