At 3.1 percent: Expensive fuel causes inflation to rise in March

According to Statistics Austria’s flash estimate, food, tobacco and alcohol cost 2.4 percent more. “However, the most important driver of inflation remained services, which became 4.5 percent more expensive in March, after a price increase of 4.0 percent in February,” said Statistics Austria General Director Manuela Lenk in a press release. The statistics authority will announce details of inflation developments in March in mid-April.

Economic researchers do not expect a wave of inflation like in 2022/23

Wifo inflation expert Josef Baumgartner does not expect a wave of inflation for the current year like in 2022/2023 because gas prices have not risen as sharply so far. For this year he expects an inflation rate in Austria “of just under three percent”. The assumption for the inflation forecast is that the Iran war is coming to an end and oil prices will “normalize again” from June, Baumgartner told APA. For gas, the expert expects higher prices in the long term because supply will remain somewhat limited due to damage to the LNG plant in Qatar and gas plants in Saudi Arabia.

The Wifo economist expects a sharper increase in food prices, especially from summer onwards with the new harvest, for example for fresh vegetables, grains and fruit. The Iran war has caused diesel and fertilizer prices to rise sharply, making agricultural production costs noticeably more expensive.

National Bank: Annual average inflation rate 2.7 percent

The Oesterreichische Nationalbank (OeNB) recently forecast that the annual average inflation rate would be 2.7 percent. For the following two years, the inflation rate is expected to fall again to 2.3 (2027) and 2.1 (2028) percent. However, due to the high level of uncertainty surrounding the Iran war, there are significant upward risks to expectations.

The US and Israel’s war against Iran, which has been ongoing since the end of February, has driven up oil and gas prices. Iran has largely closed the Strait of Hormuz: a fifth of global oil consumption is transported through the strait. This causes shortages, which is why world market prices have risen.

IMF: Iran war drives inflation and threatens supply chains

According to the International Monetary Fund (IMF), the war in the Middle East has far-reaching consequences for energy trade, global supply chains and financial markets and is putting a significant strain on the global economy. In a blog post, the IMF describes the conflict as a “global but asymmetric shock” that primarily affects three channels: energy prices, trade and financial conditions. The disruption to the energy supply is particularly serious.

“The war is also changing the supply chains for everyday goods and critical means of production,” emphasizes the IMF. The diversion of tankers and container ships increases freight and insurance costs and extends delivery times. Flight cancellations at key Gulf hubs hit global tourism and complicated trade.

Concern about food prices

States, businesses and consumers were already feeling the impact of these supply chain issues. “With fertilizer deliveries – about a third of which pass through the Strait of Hormuz – disrupted, concerns about food prices are growing.” The reason is higher prices for fertilizers and other intermediate products.

Overall, according to the IMF, there is a risk of rising inflation and weaker growth worldwide. The severity of the impact depends on the duration, extent and destructiveness of the conflict. But one thing is already clear: the economic risks are increasing.

In countries where people spend a large proportion of their income on food – particularly in Africa, parts of the Middle East and Central America – higher prices have acute social and economic costs. But in Europe too, a further energy-related price increase would exacerbate the existing cost of living burdens.