Inflation falls in the euro zone, rises in Austria

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Inflation remains high: for February 2023, it is expected to be 11.0 percent, according to calculations by Statistics Austria, as part of a flash estimate. Compared with the previous month, the price level is thus expected to rise by 1.0 percent. A trend that looks different in many parts of Europe.

In January, inflation was 11.2 percent – the highest value in the current wave of inflation. The inflation calculation measures how much prices have risen in the past 12 months.

Food and energy expensive

“The continued high inflation rate is due, among other things, to price increases in food, household energy and entertainment,” Statistics Austria Director General Tobias Thomas said Thursday.

Many product groups, especially food, electricity and gas, were significantly cheaper for household customers a year ago, in February 2022. Economists expect inflation to slow down this year, partly because the so-called base effect will come into play. For example, after the start of the Ukraine war and in the summer of 2022, diesel and gasoline were significantly more expensive than at present. Among other things, this effect should dampen inflation in the coming months.

Compared with other EU countries, inflation in Austria is currently higher. For example, Germany reported expected inflation of 8.7 percent on Wednesday for February. Calm has also returned to many other EU countries – albeit at a high level.

A flash estimate from the statistics office Eurostat on Thursday put February inflation at 8.5 percent. Economists polled by Reuters had expected a sharper fall to 8.2 percent from an inflation rate of 8.6 percent in January.

Energy prices continued to fuel inflation, although the price increase in February was not as strong as at the beginning of the year. Energy prices rose 13.7 percent over the year, compared with 18.9 percent in January. Prices for food, alcohol and tobacco rose by 15 percent after 14.1 percent at the beginning of the year. Industrial goods, excluding energy, rose by 6.8 percent in February. In January, the increase was 6.7 percent. Services grew by 4.8 percent, compared with 4.4 percent in January.

ECB holds out the prospect of the next key interest rate hike

The European Central Bank (ECB) is aiming for an inflation rate of 2.0 percent, which is optimal for the development of the economy but has been missing this target for some time. Against this backdrop, the ECB has raised key interest rates five times since July 2022 by three full percentage points to keep rising inflation in check. The deposit rate, the key rate on the financial markets and banks receive for parking surplus funds, currently stands at 2.5 percent. ECB President Christine Lagarde has already held out the prospect of a further 0.5 percentage point hike at the next interest rate meeting on March 16.

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